Annual Report 2002 - IMF eLibrary - International Monetary ...

International Monetary Fund

Annual Report 2002©International Monetary Fund. Not for Redistribution

HIGHLIGHTS

Safeguarding Stability Amid Uncertainties

World financial leaders met in Ottawain November 2001 to coordinate actionto stimulate the global economyfollowing the attack on the World TradeCenter. The Chairman of theDevelopment Committee, YashwantSinha (right), makes a point as (left toright) Group of 20 Chairman PaulMartin of Canada, U.S. TreasurySecretary Paul O'Neill, and InternationalMonetary and Finance CommitteeChairman Gordon Brown listen.

During the 2002 financial year the IMF faced important newchallenges in an unusually unsettled world environment.These placed increased demands on the institution in two ofits main areas of responsibility: preserving world economic

and financial stability and assisting in the global war on poverty.After a period of strong expansion, the global economy experienced a

widespread slowdown during the 2001 calendar year. Contributing tothis were further downward adjustments in equity prices, together with arise in energy prices and the tightening of monetary policy in industrialcountries that had occurred in 2000. The already weak internationaleconomy was further affected by the September 11, 2001, terroristattacks in the United States, which had a substantial—although largelytemporary—impact on economic conditions. By early 2002, however,thanks in large part to actions taken by key central banks to lower inter-est rates, there were encouraging signs that growth was recovering,although serious concerns remained in a number of countries.

In the face of the prevailing uncertainties, the IMF continued towork on the reform of the international monetary system and to focuson its core responsibilities, among them helping to prevent financialcrises among its members.

Following are some of the highlights of the IMF's work duringFY2002:

IMF LendingThe IMF's regular and concessional lending increasedstrongly as the slowdown in the world economy con-tributed to a worsening of the balance of payments dif-ficulties of several members whose access tointernational capital markets was curtailed.

• Commitments under the IMF's regular loan facili-ties—Stand-By Arrangements and the ExtendedFund Facility (EFF)—tripled, to SDR 39.4billion1 (almost $50 billion) in FY2002 from SDR13.1 billion (almost $17 billion) in FY2001. Thelargest commitments were Stand-By Arrangementsfor Brazil and Turkey, SDR 12.1 billion and SDR12.8 billion respectively. O f the commitment toBrazil, SDR 10 billion was provided under theSupplemental Reserve Facility (SRF), which isdesigned to assist members experiencing a suddenand disruptive loss of market access. A growingvolume of IMF financing commitments are nowtreated as precautionary, with borrowers indicatingthat they do not intend to draw on the funds

1As of April 30, 2002, SDR 1 = US$1.2677.

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©International Monetary Fund. Not for Redistribution

committed. Actual drawings were made in only 16 of the 34Stand-By and Extended Arrangements in place during the year.As of the end of April 2002, undrawn balances amounted toSDR 26.9 billion.

• The IMF's net uncommitted usable resources amounted to SDR 64.7billion ($82 billion) at the end of April 2002. The liquidity ratio(the ratio of net uncommitted usable resources to liquid liabilities)was 117 percent, significantly lower than the 168 percent reached ayear previously, but more than three and a half times the low pointreached before the 1999 increase in IMF quotas.

• In FY2002, the IMF's concessional lending for poverty reductioncontinued to be channeled through the Poverty Reduction andGrowth Facility (PRGF) and the joint IMF-World Bank Initiativefor Heavily Indebted Poor Countries (HIPCs). During the financialyear, the Executive Board approved nine new PRGF arrangementstotaling SDR 1.8 billion, with total disbursements amounting toSDR 1.0 billion, compared with SDR 0.6 billion in FY2001. Byend-April 2002, 26 HIPC-eligible members had been brought totheir decision points under the enhanced H I P C Initiative and oneunder the original Initiative, and the IMF had committed SDR 1.6billion in grants and disbursed about SDR 0.7 billion.

SurveillanceThe IMF conducts surveillance over the exchange rate policies of itsmember countries to ensure the effective operation of the internationalmonetary system. To this end, it regularly discusses with members theireconomic and financial policies and continuously monitors economicand financial developments at the country, regional, and global levels.• In April 2002 the Executive Board completed in large part its latest

biennial review of the principles and implementation of IMF surveil-lance. While the review found that the current system of surveillancewas working well, it identified a number of areas where furtherefforts were needed, including enhancing coverage of institutionaland structural issues, especially relating to financial sectors, andimproving analysis of debt sustainability.

• The Board in September 2001 discussed the IMF's role in promot-ing an open trading system and trade liberalization. Directors agreedthat the IMF should stress the need for a successful launch of theDoha trade round; continue to address trade issues in the context ofsurveillance and IMF-supported programs; lay the groundwork fortrade liberalization through its technical assistance; and cooperateclosely with the World Trade Organization and the World Bank.

Strengthening the International Financial SystemSince the Mexican crisis of 1994-95 and the Asian crises of 1997-98,much has been done to strengthen the international financial systemand the capacity of the IMF and its members for crisis prevention.Nevertheless, it would be unrealistic to suppose that all countries willbe able to avoid crises at all times. Thus, work has also advancedtoward assisting countries to resolve crises.

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First Deputy Managing DirectorAnne O. Krueger's proposal to establisha Sovereign Debt RestructuringMechanism was one of the IMF'smajor initiatives for the year.

Regular andConcessional Lending(In billions of SDRs, financial year)

IMF Liquidity Ratio(In percent, end financial year)

IMF Credit Outstanding(In billions of SDRs, end financial year)

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H I G H L I G H T S O F F Y 2 0 0 2

• The IMF has strengthened its monitoring of mem-bers' vulnerability to external crises by drawing onupdated World Economic Outlook projections, earlywarning system models, detailed analyses of coun-tries' financing requirements, market information,and assessments of financial sector vulnerability andrisks of contagion.

• In recent years, the IMF has actively promotedincreased transparency of its members' policies,sought to improve public understanding of its ownpolicies and operations, and encouraged feedbackfrom both national authorities and the public.Through its website (www.imf.org) it releases awealth of information on its activities.

• During FY2002, the IMF reviewed its Data Stan-dards Initiatives and approved a Data QualityAssessment Framework, integrated with the Reportson the Observance of Standards and Codes(ROSCs).

• Recognizing the critical importance of concertedaction to strengthen financial systems, the IMF con-tinued to conduct financial "health checkups" underthe Joint IMF-World Bank Financial Sector Assess-ment Program (FSAP). By April 2002, 27 countrieshad completed their FSAP participation, and 50others had committed to participate.

IMF Managing Director Horst Kohler (right) meetsAfghanistan's Interim Authority Chairman Hamid Karzai,January 29, 2002. The IMF has offered technicalassistance to Afghanistan to help with banking, currencyissues, and the fiscal situation.

• During the year, discussions continued on a range ofissues relating to resolving financial crises and the roleof the private sector. A plan of work on crisis resolu-tion outlined a four-point program designed toincrease the IMF's capacity to assess a country's debtsustainability; clarify the policy on access to IMFresources; strengthen the tools available for securingprivate sector involvement in resolving financialcrises; and examine a more orderly and transparentlegal framework for sovereign debt restructurings.Proposals for a new sovereign debt restructuringmechanism were spelled out in late 2001 and early2002 by Anne O. Krueger, the IMF's First DeputyManaging Director.

• The IMF's work on anti-money-laundering issuesacquired increased importance after the September11 attacks, when it was extended to combating thefinancing of terrorism.

Lending Policies and ConditionalityThe IMF regularly reviews its "conditionality"—theconditions it attaches to its financial assistance toensure that it is repaid (so that its resources becomeavailable to other members in need) and that externalviability, financial stability, and sustainable economicgrowth are restored in the borrowing member coun-try—and its policy on access to its financial resources.• The latest review of conditionality, which was still in

progress at the end of FY2002, emphasized thatconditionality must be applied in a way that rein-forces national ownership, should focus on policiescritical to achieving a program's macroeconomicgoals, and set a clearer division of labor between theIMF and other institutions, particularly the WorldBank.

• After reviewing the policy governing members' accessto its resources, the IMF determined to maintain cur-rent annual and cumulative access limits, but agreedto later review the policy involving high access toresources.

Poverty ReductionReducing poverty in low-income countries is a majorinternational challenge, and the IMF continues to playits role. Besides the lending mentioned above, the IMFtook a number of steps in FY2002 to reinforce andstrengthen its support for reform and developmentefforts in low-income countries.• The IMF received about SDR 7 million in contribu-

tions from five members to subsidize the rate ofcharge on Post-Conflict Emergency Assistance.

• The IMF and the World Bank jointly reviewed thePoverty Reduction Strategy Paper (PRSP) approach,which, combined with sound policies, is expected toput countries on a path to sustainable growth and

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poverty reduction and toward achieving the UN'sMillennium Development Goals.

• The IMF—jointly with the World Bank, AsianDevelopment Bank, and European Bank forReconstruction and Development—sponsored aninitiative to help the seven low-income members ofthe Commonwealth of Independent States accelerategrowth and poverty reduction.

• A review of the PRGF in March 2002 empha-sized the need to build on progress in several specific areas,including designing policies to foster pro-poor economic growth,improving the quality and efficiency of government spending,coordinating program design with the World Bank, and enhanc-ing communication with authorities, donors, and civil society inPRGF countries.

• Late in the financial year, the IMF reviewed the status of the H I P CInitiative and the movement toward long-term external debt sus-tainability. At that time, H I P C countries had received commitmentsof $40 billion (in nominal terms) in debt relief.

Technical Assistance and TrainingIMF technical assistance supports the institution's surveillance and pro-gram work, and its importance has grown steadily in recent years. Rec-ommendations emerging from the FSAP, the adoption of internationalstandards, tracking indicators for the H I P C Initiative, and combatingmoney laundering and the financing of terrorism have all increasedmembers' requests for technical assistance.• During the year, the IMF's Caribbean Regional Assistance Center

was established; two more centers will open in late 2002 in Eastand West Africa under the IMF's Africa Capacity-BuildingInitiative.

• The IMF Institute increased training by about 9 percent overFY2001. A Joint Regional Training Center for Latin America wasopened, bringing the number of such regional centers to five.

Organization, Budget, and StaffingFY2002 saw several major changes within the IMF.• The IMF bid farewell to First Deputy Managing Director Stanley

Fischer and to Economic Counsellor and Director of the ResearchDepartment Michael Mussa and welcomed their successors—AnneKrueger and Kenneth Rogoff. Jack Boorman, who stepped down asDirector of the Policy Development and Review (PDR) Depart-ment, retained his position as Counsellor and became a SpecialAdvisor to the Managing Director. He was succeeded as P D Rdirector by Timothy Geithner. Gerd Hausler joined the IMF asCounsellor and Director of the new International Capital MarketsDepartment, which came into being in FY2002.

• The Independent Evaluation Office became operational.• The IMF's internal budgeting process was reviewed by a panel of

external experts, who made a number of recommendations. Some ofthese have already been put in place, while other changes will beintroduced in FY2003 and FY2004.

* * *After the end of the financial year, on July 23, 2002, the DemocraticRepublic of East Timor became the 184th member of the IMF.

Stanley Fischer gets a standing ovation fromthe IMF Board. Fischer served as First DeputyManaging Director from September 1994 toAugust 2001 and then as Special Adviser tothe Managing Director until January 31, 2002.

Technical Assistance(By function, as a percent of total resourcesin work-years FY2002)

HIPCs-Debt Reduction**(Net present value of debt, in billionsof US$ — in decision point terms)

Countries that reached their decision points asof April 30, 2002.

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PRGF—New Commitments*(In millions of SDRs, financial year)

Poverty Reduction and Growth Facility; beforeNovember 1999, the Enhanced StructuralAdjustment Facility.


Managing Director and Deputy Managing Directorson April 30, 2002

Managing Director Horst Kohler (center), with his management team, First DeputyManaging Director Anne Krueger (left), Deputy Managing DirectorEduardo Aninat (seated), and Deputy Managing Director Shigemitsu Sugisaki.

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Message from the Managing Director

Over the past year, the international financial system has shown remarkable resilience in the face ofa sharp slowdown in global economic growth, a fundamental reassessment in equity markets ofthe technology and telecommunications sectors, and the terrorist attacks in the United States.Most of the credit must go to decisive policy action by the United States and other industrial

countries, including coordinated actions by central banks, supervisors, and private financial institutions tosafeguard banking and payments systems in the aftermath of the September 11 attacks. It was also importantthat the membership of the I M F came together last November in Ottawa to define a collaborative approachto strengthen the global economy.

While an economic recovery has since gotten under way, there are still uncertainties and risks. Keeping therecovery on track will require strong leadership by the advanced industrial countries, including action tostrengthen the prospects for sustained growth in their own economies and leading by example in the effort tomake globalization work for the benefit of all.

The Asian crisis of 1997-98 sparked a critical debate about the process of globalization and the reform ofthe international financial architecture. A n d while we have not reached the end of that debate, the lessonslearned have led to important reforms. The I M F has become more open and transparent. We have worked tostreamline conditionality and build ownership of reforms. We are improving the IMF's capacities for crisisprevention and management. To strengthen the tools for crisis resolution, we are encouraging the use of col-lective action clauses in borrowing agreements, and have proposed the creation of a sovereign debt restruc-turing mechanism. We are also intensifying cooperation with the World Bank and other internationalinstitutions to ensure a good division of labor. Together with the Bank, we have embarked on a comprehen-sive program to assess financial sector strengths and weaknesses in our member countries. A n d during thepast year, the I M F and other international organizations stepped up work on combating money launderingand the financing of terrorism.

Our surveillance of capital markets and assessments of systemic vulnerability have been strengthened byour new International Capital Markets Department and its quarterly reports on global financial stability.Recent accounting and corporate governance scandals have underscored the need to pay close attention torisks and vulnerabilities arising in the advanced economies, and to examine the adequacy of existing regula-tory systems. Our work on internationally recognized standards and codes, which is helping to establish newrules of the game for the global economy, can be an element in that process.

The I M F is playing an active part in the effort to achieve the Millennium Development Goals. In my talkswith political leaders, business persons, and civil society in low-income countries, I have been struck by thewillingness to take responsibility for tackling the homegrown causes of poverty. It is particularly encouragingthat African leaders have made good governance, sound policies, and increased trade and investment the cor-nerstones of the New Partnership for Africa's Development ( N E P A D ) . Our global outreach and review haveshown that the Poverty Reduction Strategy Paper (PRSP) process is broadly accepted as a practical way to putthis approach into action. For its part, the I M F remains committed to assisting low-income countries withpolicy advice, financial assistance, H I P C debt relief, and technical assistance—including regional technicalassistance centers to support institution building in Africa, the Caribbean, and the Pacific.

While it is crucial not to neglect any element of comprehensive support for poverty reduction, expandingopportunities for trade is clearly the best form of help for self-help—not only because it paves the way forgreater self-sufficiency, but also because it is a win-win proposition for developed and developing countriesalike. The elimination of trade-distorting subsidies, not least for agricultural products, and market opening byadvanced and developing countries are key to bolstering confidence in the prospects for strong global growthand shared prosperity in the world.

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Executive Board on April 30, 2002

United StatesJapan Germany

(Position Vacant)*Meg Lundsager

Ken YagiHaruyuki Toyoma

Karlheinz BischofbergerRuediger von Kleist

Armenia, Bosnia andHerzegovina,Bulgaria,Croatia, Cyprus,Georgia, Israel, FYRMacedonia, Moldova, 1Netherlands,Romania, Ukraine

m 1

Costa Rica,El Salvador,Guatemala,Honduras, Mexico,Nicaragua, Spain,RepublicaBolivarianade Venezuela

Albania, Greece, Italy,Malta, Portugal, SanMarino

J. de BeaufortWijnholdsYuriy G. Yakusha

Fernando VarelaHernan Oyorzabal

Pier Carlo PadoanHarilaos Vittos

Saudi Arabia

Sulaiman M. Al-TurkiAhmed Saleh Alosaimi

Cyrus D.R. RustomjeeIsmailo Usman

Angola, Botswana,Burundi, Eritrea,Ethiopia, The Gam-bia, Kenya, Lesotho,Liberia, Malawi,Mozambique,Namibia, Nigeria,Sierra Leone, SouthAfrica, Sudan,Swaziland, Tanza-nia, Uganda, Zam-bia, Zimbabwe

Brunei Darussalam,Cambodia, Fiji,Indonesia, Lao P.D.R.,Malaysia, Myanmar,Nepal, Singapore,Thailand,Tonga, Vietnam

Dono IskandarDjojosubrotoKwok Mun Low

Azerbaijan,Kyrgyz Republic,Poland,Switzerland,Tajikistan,Turkmenistan,Uzbekistan

Brazil, Colombia,Dominican Republic,Ecuador, Guyana,Haiti, Panama,Suriname, Trinidadand Tobago

Roberto F. Cippd Murilo PortugalWieslow Szczuko Roberto Junguito

Note: Alternate Executive Directors are indicated in italics.*Randal Quarles relinquished his duties as Executive Director for the United States, effective April 2, 2002.

Bangladesh, Bhutan,India,Sri Lanka

Vijay L. KelkarR.A. Joyotisso

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France

Pierre DuquesneSebastien Boitreaud

United Kingdom

Tom ScholarMartin A. Brooke

Willy KiekensJohann Prader

Austria, Belarus,Belgium, CzechRepublic, Hungary,Kazakhstan,Luxembourg, SlovakRepublic, Slovenia,Turkey

Antigua andBarbuda, TheBahamas, Barbados,Belize, Canada,Dominica, Grenada,Ireland, Jamaica,St. Kitts and Nevis, St.Lucia, St. Vincentand the Grenadines

Denmark, Estonia,Finland, Iceland,Latvia, Lithuania,Norway,Sweden

Ian E. BennettNioclas A. O'Murchu

Olafur IsleifssonBenny Andersen

Michael J. CallaghanDiwa Guinigundo

Australia, Kiribati,Korea, MarshallIslands, FederatedStates of Micronesia,Mongolia, NewZealand, Palau,Papua New Guinea,Philippines, Samoa,Seychelles, SolomonIslands, Vanuatu

A. Shakour ShaalanMohamad B. Chatah

Bahrain, Egypt, Iraq,Jordan, Kuwait,Lebanon, Libya,Maldives, Oman,Qatar, Syrian ArabRepublic, UnitedArab Emirates,Yemen

China Russia

WEI BenhuaWang Xiaoyi

Aleksei V. MozhinAndrei Lushin

Abbas MirakhorMohammed Dairi

Algeria, Ghana,Islamic Republic ofIran, Morocco,Pakistan, Tunisia

Argentina, Bolivia,Chile, Paraguay,Peru, Uruguay

A. Guillermo ZoccaliGuillermo Le Fort

Alexandre BarroChambrierDamian Ondo Mañe

Benin, Burkina Faso,Cameroon, CapeVerde, CentralAfrican Republic,Chad, Comoros,Republic of Congo,Cote d'Ivoire,Djibouti, EquatorialGuinea, Gabon,Guinea, Guinea-Bissau, Madagascar,Mali, Mauritania,Mauritius, Niger,Rwanda, Sao Tomeand Principe,Senegal, Togo

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Senior Of f icers on April 30, 2002

Jack Boorman*Counsellor and Special Advisorto the Managing Director

Gerd Hausler*Counsellor

Kenneth S. Rogoff*Economic Counsellor

Abdoulaye Bio-TchaneDirector, African Department

Yusuke HoriguchiDirector, Asia and Pacific Department

Michael C. DepplerDirector, European I Department

John Odling-SmeeDirector, European II Department

Thomas C. Dawson IIDirector, External Relations Department

Teresa M . Ter-MinassianDirector, Fiscal Affairs Department

Margaret R. KellyDirector, Human Resources Department

Mohsin S. KhanDirector, IMF Institute

Gerd HauslerDirector, International Capital Markets Department

Francois P. GianvitiGeneral Counsel, Legal Department

Paul ChabrierDirector, Middle Eastern Department

Stefan IngvesDirector, Monetary and Exchange Affairs Department

Timothy F. GeithnerDirector, Policy Development and Review Department

Kenneth S. RogoffDirector, Research Department

Shailendra J. AnjariaSecretary, Secretary's Department

Carol S. CarsonDirector, Statistics Department

Brian C. StuartDirector, Technology and General Services Department

Eduard BrauTreasurer, Treasurer's Department

Claudio M. LoserDirector, Western Hemisphere Department

Barry PotterDirector, Office of Budget and Planning

Rafael MuñozDirector, Office of Internal Audit and Inspection

Claire LiuksilaDirector, Office of Technical Assistance Management

Kunio SaitoDirector, Regional Office for Asia and the Pacific

Flemming LarsenDirector, Office in Europe (Paris)

Grant B. TaplinActing Director and Special Trade Representative,Office in Geneva

Reinhard MunzbergDirector and Special Representative to the UN,Office at the United Nations

Montek Singh AhluwaliaDirector, Independent Evaluation Office

Jeanette MorrisonChief, Editorial Division

*Alphabetical order.

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Letter of Transmittal to the Board of Governors

August 28, 2002

Dear Mr. Chairman:

I have the honor to present to the Board of Governors the Annual Report of the Executive Boardfor the financial year ended April 30, 2002, in accordance with Article XII, Section 7 (a) of theArticles of Agreement of the International Monetary Fund and Section 10 of the IMF's By-Laws.In accordance with Section 20 of the By-Laws, the administrative and capital budgets of the IMFapproved by the Executive Board for the financial year ending April 30, 2003, are presented inChapter 8. The audited financial statements for the year ended April 30, 2002, of the GeneralDepartment, the SDR Department, and the accounts administered by the IMF, together withreports of the external audit firm thereon, are presented in Appendix IX.

Horst KohlerChairman of the Executive Board

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Board of Governors, Executive Board,International Monetary and Financial Committee,and Development Committee

The Board of Governors, the highest decision-making body of the IMF, consists ofone governor and one alternate governor for each member country. The gover-nor is appointed by the member country and is usually the minister of finance orthe governor of the central bank. All powers of the IMF are vested in the Boardof Governors. The Board of Governors may delegate to the Executive Board allexcept certain reserved powers. The Board of Governors normally meets once ayear.

The Executive Board (the Board) is responsible for conducting the day-to-daybusiness of the IMF. It is composed of 24 Directors, who are appointed orelected by member countries or by groups of countries, and the Managing Direc-tor, who serves as its Chairman. The Board usually meets several times each week.It carries out its work largely on the basis of papers prepared by IMF manage-ment and staff. In 2001/2002, the Board spent about 70 percent of its time onmember country matters (regular country consultations and reviews andapprovals of financial arrangements) and much of its remaining time on globalsurveillance and policy issues (such as the world economic outlook exercise,developments in international capital markets, the IMF's financial resources, thearchitecture of the international monetary and financial system and the IMF'srole, debt of the heavily indebted countries, and issues concerning IMF facilitiesand program design).

The International Monetary and Financial Committee of the Board of Gover-nors (formerly the Interim Committee on the International Monetary System) isan advisory body made up of 24 IMF governors, ministers, or other officials ofcomparable rank, representing the same constituencies as in the IMF's ExecutiveBoard. The International Monetary and Financial Committee normally meetstwice a year, in April or May, and at the time of the Annual Meeting of the Boardof Governors in September or October. Among its responsibilities are to provideministerial guidance to the Executive Board and to advise and report to theBoard of Governors on issues regarding the management and adaptation of theinternational monetary and financial system, including sudden disturbances thatmight threaten the international monetary system, and on proposals to amend theIMF's Articles of Agreement.

The Development Committee (the Joint Ministerial Committee of the Boards ofGovernors of the World Bank and the IMF on the Transfer of Real Resources toDeveloping Countries) is composed of 24 members—finance ministers or otherofficials of comparable rank—and generally meets the day after the InternationalMonetary and Financial Committee. It advises and reports to the Boards of Gov-ernors of the World Bank and the IMF on all aspects of the transfer of realresources to developing countries.

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CONTENTS

Highlights ii

Message from the Managing Director vii

Executive Board viii

Senior Officers x

Letter of Transmittal xi

Board of Governors, Executive Board, International Monetary and

Financial Committee, and Development Committee xii

Note xvii

1. World Economic and Financial Developments in FY2002 3Global Economic Environment 3Key Developments in Emerging Market and Industrial Countries 6

2. IMF Surveillance in Action 8Country Surveillance 10Global Surveillance 10

World Economic Outlook 11International Capital Markets and Global Financial Stability 17

Regional Surveillance 20Central African Economic and Monetary Community 20West African Economic and Monetary Union 21Monetary and Exchange Policies of the Euro Area and Trade Policies of

the European Union 22Trade and Market Access Issues 24

3. Strengthening the International Financial System 26Crisis Prevention 26

Assessing External Vulnerability 26Transparency 28Standards and Codes 29Strengthening Financial Sectors 31Capital Account Liberalization 32

Crisis Resolution 32Work Program for Crisis Resolution 33Sovereign Debt Restructuring . 34

Combating Money Laundering and the Financing of Terrorism 36Background 36Post-September 11 Board Discussion 36

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C O N T E N T S

4. IMF Lending Policies and Conditionality 40Review of Conditionality 40

Streamlining Structural Conditionality—Initial Experience 40Strengthening Country Ownership of Programs 41Making Improvements 44Review of Progress 44

Review of Access Policy 45

5. Poverty Reduction and Debt Relief for Low-Income Countries 46Global Economic Environment and IMF's Support for Low-Income Countries 46Broader IMF Support for the Global Effort to Reduce Poverty 46

The PRSP Review 47Review of the Poverty Reduction and Growth Facility 49

HIPC Initiative and Debt Sustainability 51Capacity Building 51

CIS Initiative 51Support by the International Community . 53Looking Ahead 55

6. Financial Operations and Policies in FY2002 56Regular Financing Activities 57

Lending . . . 57Resources and Liquidity 58

Quota Developments 59Concessional Financing 60

Poverty Reduction and Growth Facility 61Enhanced HIPC Initiative 61Financing of the HIPC Initiative and PRGF Subsidies 62Investment of SDA, PRGF, and PRGF-HIPC Resources 63Post-Conflict Emergency Assistance 63

Special Drawing Rights 63Income, Charges, Remuneration, and Burden Sharing 65Safeguarding IMF Resources and Dealing with Arrears 67

Safeguards Assessments 67Misreporting 68Arrears to the IMF 69

7. Technical Assistance and Training 71Prioritizing the IMF's Technical Assistance 71New Developments 72Technical Assistance Delivery in FY2002 74Expanded Training by the IMF Institute 76

8. Organization, Budget, and Staffing 78Organization 78

Executive Board 78Departments 78Independent Evaluation Office 82

Administrative and Capital Budgets 82Budget Reforms 82Budgets and Actual Expenditure in FY2002 82Budgets in FT2003 82Medium-Term Framework 83

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CONTENTS

Changes in Management and Senior Staff 84Staff 84

Recruitment and Retention 84Dispute Resolution 85Salary Structure 85Diversity 86

New Building 87

Appendixes . . 89I International Reserves . 95

II Financial Operations and Transactions 100III Principal Policy Decisions of the Executive Board 120IV IMF Relations with Other International Organizations 129V External Relations 132

VI Press Communiques of the International Monetary andFinancial Committee and the Development Committee 136

VII Executive Directors and Voting Power on April 30, 2002 146VIII Changes in Membership of the Executive Board 150

IX Financial Statements 153

Abbreviations 214

Boxes2.1 IMF Biennial Surveillance Review 92.2 IMF Launches Quarterly Report on Global Financial Markets 102.3 Doha Development Agenda 253.1 Board Discusses Guidelines for Foreign Exchange Reserve Management 283.2 IMF's Data Standards 303.3 Collaborating on Standards 313.4 F D M D Krueger Proposes a Sovereign Debt Restructuring Mechanism 353.5 Progress on Anti-Money Laundering and Combating the Financing of

Terrorism During FY2002 . 384.1 IMF Requests Public Comment 415.1 Millennium Development Goals 475.2 International Conference on Poverty Reduction Strategies . 485.3 What Is a PRSP? . 495.4 Key Features of Programs Supported by the Poverty Reduction

and Growth Facility 505.5 Africa Initiatives 545.6 Conference on Financing for Development, Monterrey, Mexico 556.1 Public Information on IMF Finances 566.2 The IMF's Financing Mechanism 576.3 Financial Transactions Plan 596.4 IMF Financial Resources and Liquidity 606.5 Twelfth Review of Quotas 616.6 SDR Valuation and Interest Rate 646.7 IMF Executive Board Reviews Experience with Safeguards Assessments 687.1 Combating Money Laundering and Financing of Terrorism:

Technical Assistance and Coordination Efforts 727.2 Caribbean Regional Technical Assistance Center 747.3 Recently Established Technical Assistance Subaccounts 748.1 IMF Resident Representatives 79

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C O N T E N T S

Tables1.1 Overview of the World Economy 42.1 Article IV Consultations Concluded in FY2002 124.1 IMF Financial Facilities 425.1 Progress Status of Countries Under the Enhanced HIPC Initiative 536.1 IMF Financial Assistance Approved in FY2002 586.2 New PRGF Loan Resources Committed by Lenders 626.3 Commitments and Disbursements of HIPC Initiative Assistance 626.4 Contributions to Subsidize Post-Conflict Emergency Assistance 636.5 SDR Valuation 646.6 Transfers of SDRs 666.7 Arrears to the IMF of Countries with Obligations Overdue by Six Months

or More, by Type and Duration, as of April 30, 2002 697.1 Technical Assistance Delivery Indicators for Main Program Areas

and Key Policy Initiatives and Concerns 737.2 Technical Assistance Sources and Delivery, FY1998-FY2002 757.3 IMF Institute Training Programs for Officials, FY1998-FY2002 767.4 IMF Institute Regional Training Programs 778.1 Recommended Reforms to IMF Internal Budgeting 828.2 Administrative and Capital Budgets, Financial Years 2000-2003 838.3 Distribution of Professional Staff by Nationality 848.4 IMF Staff Salary Structure 858.5 Distribution of Staff by Gender 868.6 Distribution of Staff by Developing and Industrial Countries 87

Figures1.1 Global Indicators 55.1 Enhanced HIPC Initiative Flow Chart 526.1 IMF Liquidity Ratio, April 1993-April 2002 606.2 SDR Interest Rates, 1992-2002 647.1 Technical Assistance by Function, FY2002 767.2 Technical Assistance by Region, FY2002 768.1 IMF Organization Chart 808.2 Share of Resources by Output Category, FY2003 83

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NOTE

A N N U A L R E P O R T 2 0 0 2 xvii

T his Annual Report of the Executive Board of the IMF reports on the activities of theBoard during the financial year May 1, 2001, through April 30, 2002. Most of the Reportconsists of reviews of Board discussions of the whole range of IMF policy and operations.The discussions are based on papers prepared by the staff. Typically, a staff paper includesbackground factual and analytical material on various aspects of the issue at hand andrequests the Board's views on the main issues involved. It may also present proposals by theIMF's management on how the Board and the institution should move forward on an issue.Although a staff paper presents the positions of staff and management, it does not necessar-ily represent the IMF's position on the issue. The Board may or may not agree with theanalysis or the proposals. The position of the IMF is, rather, the position of the Board asreflected in a decision, or as explained in a statement summarizing the discussion (usuallyreferred to in the IMF as the "summing up").

The unit of account of the IMF is the SDR; conversions of IMF financial data to U.S.dollars are approximate and are provided for convenience. As of April 30, 2002, theS D R / U . S . dollar exchange rate was US$1 = SDR 0.788826, and the U.S. dollar/SDRexchange rate was SDR 1 = US$1.267706. The year-earlier rates (April 30, 2001) wereUS$1 = SDR 0.7900204 and SDR 1 - US$1.26579.

The following conventions are used in this Report:. . . to indicate that data are not available;— to indicate that the figure is zero or less than half the final digit shown or that the

item does not exist;between years or months (for example, 1999-2000 or January-June) to indicatethe years or months covered, including the beginning and ending years or months;

/ between years or months (for example 1999/00) to indicate a fiscal or financialyear.

"Bill ion" means a thousand million; "trillion" means a thousand billion.Minor discrepancies between constituent figures and totals are due to rounding.As used in this Report, the term "country" does not in all cases refer to a territorial

entity that is a state as understood by international law and practice. As used here, the termalso covers some territorial entities that are not states but for which statistical data are main-tained on a separate and independent basis.


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ANNUAL REPORT 2002


CHAPTER

World Economic and Financial Developments in FY2002

In 2001 the world economy experienced a synchro-nized, widespread slowdown after the unusually strongexpansion of the previous year, with growth slowing inevery major region except Africa (Table 1.1 and Figure1.1). The slowdown reflected a series of intertwineddevelopments in 2001, including the downwardadjustment in equity prices (particularly in the infor-mation technology sector), a rise in energy prices, andthe tightening of monetary policy in industrial coun-tries in response to evidence of rising demandpressures. The already weakening international econ-omy was further affected by the September 11 terroristattacks in the United States, which had a substantial—although largely temporary—influence onmacroeconomic conditions. In the first few months of2002, however, there were increasing signs that theslowdown was bottoming out in most regions and thatgrowth was turning up in some—most notably NorthAmerica and a number of east Asian countries. Thisreflected, at least in part, the significant easing ofmacroeconomic policies in the advanced countries in2001, especially in the United States and in a numberof emerging countries in Asia, as well as the comple-tion of ongoing inventory cycles. Partly mirroring theweakening of growth in 2001, inflation remainedextremely low almost everywhere. Indeed, ongoingdeflation in Japan continued to worsen already difficulteconomic conditions.

Financial flows to emerging market economies fol-lowed a broadly similar pattern, being weak throughmuch of 2001 as investors became more concernedabout risk, particularly in the wake of the crisis inTurkey early in the year, the September terroristattacks, and mounting difficulties in Argentina. Theimpact of the terrorist attacks, however, proved lessdurable than had been initially feared and the crisis inArgentina led to relatively little immediate contagionto other countries in late 2001. As a result, in the firstquarter of 2002, flows to emerging markets strength-ened and risk spreads, as reflected in the EMBI+,came down to levels not seen since before the Russiancrisis in 1998.

Global Economic Environment

A series of fluctuations in the price of oil—reflectingboth demand and supply factors—dominated develop-ments in commodity markets. Oil prices remained in theOrganization of Petroleum Exporting Countries'(OPEC) reference band of US$22-28 a barrel rangethrough much of 2001 as falling demand due to slow-ing growth was essentially offset by O P E C productioncuts. The terrorist attacks in September led to anextremely brief spike in prices on fears of supply disrup-tions, after which prices rapidly dropped below thelower bound of the O P E C reference range as slowingactivity led to a fall in actual and anticipated demand,bottoming out at around US$19 per barrel. This weak-ness was largely reversed in early 2002 as demandrevived while O P E C and some non-OPEC membersresponded to price weakness with further productioncuts. During April prices remained highly volatilearound US$25 a barrel when a series of largely noneco-nomic factors raised concerns about supply disruption,including increased tensions in the Middle East andpolitical developments in Venezuela.

Nonoil commodity prices were generally depressedthrough 2001 and early 2002 as slowing activity rein-forced longer-term price weakness caused largely bysupply factors, as well as industrial country subsidies.Early 2002 saw some increases in prices, particularly inthe more cyclically sensitive metals, but overall nonoilcommodity prices remained below their levels at thestart of 2001. Prices of semiconductors—the marketfor which is rapidly gaining the same characteristics asthose for "traditional" commodities—fell rapidlythrough 2001 as demand for information technologygoods slumped before showing some revival in early2002 on evidence of a recovery in growth.

World trade volumes fell in 2001, reflecting theweakness in economic activity, particularly in manufac-turing and, more specifically, informationtechnology—sectors that are relatively trade-intensive.Owing to the generalized and synchronized nature ofthe economic slowdown, all regions were affected, with

A N N U A L R E P O R T 2 0 0 2 3

1


C H A P T E R I

Table 1.1Overview of the World Economy(Annual percent change unless otherwise noted)

1994 1995 1996 1997 1998 1999

Source: IMF, World Economic Outlook, April 2002.1Indonesia, Malaysia, the Philippines, and Thailand.2Includes Malta.3Simple average of spot prices of U.K. Brent, Dubai, and West Texas Intermediate crude oil.

2000 2001

World outputAdvanced economies

Major advanced economiesUnited StatesJapanGermanyFranceItalyUnited KingdomCanada

Other advanced economiesMemorandumEuropean Union

Euro areaNewly industrialized Asian economiesDeveloping countries

AfricaDeveloping Asia

ChinaIndiaASEAN-41

Middle East and Turkey2

Western HemisphereBrazil

Countries in transitionCentral and eastern EuropeCommonwealth of Independent

States and MongoliaRussiaExcluding Russia

MemorandumWorld growth based on market exchange ratesWorld trade volume (goods and services)Imports

Advanced economiesDeveloping countriesCountries in transition

ExportsAdvanced economiesDeveloping countriesCountries in transition

Commodity prices (U.S. dollars)O i l 3

Nonfuel (average based on worldcommodity export weights)

Consumer pricesAdvanced economiesDeveloping countriesCountries in transitionSix-month London interbank

offered rate (LIBOR, percent)On U.S. dollar depositsOn Japanese yen depositsOn euro deposits

3.73.43.14.01.12.31.92.24.74.74.6

2.82.47.76.72.39.6

12.66.87.60.55.05.9

-8.53.0

-14.5-13.5-16.6

3.18.8

9.56.56.0

8.611.63.0

-5.0

13.4

2.655.3

252.5

5.12.45.7

3.62.72.32.71.51.71.82.92.92.84.3

2.42.37.56.13.09.0

10.57.68.14.21.84.2

-1.55.6

-5.5-4.2-8.6

2.89.7

8.719.111.2

8.311.09.4

7.9

8.4

2.623.2

133.8

6.11.35.7

4.03.02.83.63.60.81.11.12.61.63.8

1.71.56.36.55.68.39.67.57.34.83.62.6

-0.54.0

-3.3-3.4-3.1

3.36.8

6.49.68.9

6.09.66.6

18.4

-1.3

2.415.442.5

5.60.73.7

4.23.43.24.41.81.41.92.03.44.34.3

2.62.55.85.83.16.68.85.03.45.65.23.31.62.6

1.10.91.5

3.510.5

9.311.715.2

10.513.89.0

-5.4

-3.0

2.110.027.3

5.80.73.5

2.82.72.84.3

-1.02.03.51.83.03.92.2

3.02.9

-2.43.53.44.07.85.8

-9.43.92.30.2

-0.82.3

-2.8-4.9

1.7

2.34.2

5.9-0.8-0.2

4.04.83.6

-32.1

-14.7

1.510.621.8

5.50.63.7

3.63.32.94.10.71.83.01.62.15.15.0

2.72.78.03.92.66.17.16.72.91.00.20.83.62.2

4.65.42.8

3.05.3

7.81.3

-7.0

5.24.3

-0.7

37.5

-7.0

1.46.9

44.1

5.50.23.0

4.73.93.54.12.23.03.62.93.04.45.3

3.43.58.55.73.06.78.05.45.15.84.04.46.63.8

8.39.07.0

4.012.4

11.616.013.2

11.715.014.6

57.0

1.8

2.36.1

20.2

6.60.34.6

2.51.21.11.2

-0.40.62.01.82.21.51.6

1.71.60.84.03.75.67.34.32.62.10.71.55.03.1

6.25.08.8

1.4-0.2

-1.52.9

10.8

-1.33.06.3

-14.0

-5.5

2.25.7

15.9

3.70.24.1

4 A N N U A L R E P O R T 2 0 0 2


W O R L D E C O N O M I C A N D F I N A N C I A L D E V E L O P M E N T S I N F Y 2 0 0 2

the decline in exports being most marked in emergingAsia (excluding China and India), because of theimportance of information technology production inthe region. In contrast to other measures of activity,such as industrial production, there was little evidenceof a pickup in trade volumes in early 2002.

Financial flows to emerging markets declined in2001, with portfolio flows being especially affected byoutflows from the crises in Argentina and Turkey, thedeflation of the information technology bubble, and theeconomic slowdown in the United States, whichresulted in a generalized move of investors to higher-quality assets. Indeed, in the aftermath of theSeptember 11 terrorist attacks, bond markets were rela-tively closed to new issuers. In the closing months ofthe year, however, equity markets and then fixed-income markets revived as signs of a global recoverystarted to appear, and emerging market access and vol-umes picked up. Despite a drop in global foreign directinvestment (FDI) and a fall in cross-border mergers andacquisitions activity, net FDI flows to emerging marketcountries are estimated to have increased to $175 bil-lion. Emerging markets continued to pay down theirexternal debt to international banks over the year.

In fixed-income markets, the slopes of the yieldcurves in the United States and euro zone becamequite steep, reflecting the anticipation of economicrecovery. In contrast, the steeper yen yield curvepointed to renewed concerns about the health of thebanking sector in Japan. Optimism about a U.S. recov-ery was also apparent in the corporate bond market, ascredit spreads narrowed over the last two months ofthe year. The strength in long-term credit markets con-trasted with the turbulence in short-term markets, andborrowers continued to replace short-term debt withlonger-term issues as commercial paper markets becameincreasingly expensive.

New bond issuance by emerging market entities fellin 2001, mainly because two of the larger sovereignissuers, namely Argentina and Turkey, were affected byfinancial crises and were unable to maintain their tradi-tionally large issuance programs. In the first quarter of2002, bond issuance to emerging markets moved backin line with historical levels, as a number of sovereignssuccessfully tapped international markets.

In fixed-income emerging markets, the direct falloutfrom the Argentina crisis and default was initially lim-ited, in part owing to more discriminating investmentbehavior by market participants. Other factors limitingcontagion included the generally more appropriate eco-nomic policies adopted by many emerging marketcountries, including the use of more flexible exchangerate regimes. However, events at the beginning offinancial year 2003 showed emerging markets werevulnerable as investors turned more risk averse andconcerns over policy continuity and the debt structure

Figure 1.1Global Indicators1

(Annual percent change unless otherwise noted)

World Real GDP Inflation - 20

6 -Trend,

2 -

Developing countries(consumer prices,

median) ~ 15

- 10

- 5-yAdvarv

- economies(consumer prices)

1970 75 80 85 90 95 2000 1970 75 85 90 95 2000

6 -

5 -

4 -

3 -

2 -

World Real Per Capita GDP World Trade Volume(goods and services)

Trend,1970-200I2

Trend,

- 16

- 12

1970 75 80 85 90 95 2000 1970 75 80 85 90 95 2000

World Real Long-Term Real Commodity PricesInterest Rate (percent)3 (1990 = 100)

9 - - - -400

0 !

Non-oilcommodity

prices

- 3 0 0

- 2 0 0

1 00

Oi l prices

"6 1970" 75 ' 80' ' 85 " 90 " 95' 2000 1970 75 ' 80'' 85 " 90" 95' 2000 °

Source: IMF World Economic Outlook, April 2002.Aggregates are computed on the basis of purchasing-power-parity weights unless

otherwise indicated.Average growth rates for individual countries, aggregated using purchasing- power-

parity weights; these shift over time in favor of faster growing countries, giving the linean upward trend.

GDP-weighted average of the 10-year (or nearest maturity) government bond yields lessinflation rates for the United States, Japan, Germany, France, Italy, the United Kingdom,and Canada. Excluding Italy prior to 1972.

of certain key emerging market borrowers mounted.These developments affected Latin American countriesin particular as the effects of contagion were feltthrough banking sector channels and difficult access tonew borrowing.

In global and emerging stock markets, a rally in Janu-ary 2001 prompted by the surprise cut in U.S. interest

A N N U A L R E P O R T 2 0 0 2 5


C H A P T E R I

rates quickly fizzled in February and March on contin-uing evidence of U.S. economic slowing and poorcorporate earnings reports. Another rally in April andMay 2001 also gave way to a sell-off in June. In themonths before the September 11 terrorist attacks, unfa-vorable economic indicators caused severe weaknessesin global stock markets. After falling sharply in the twoweeks following the attacks, stock prices regained pre-attack levels by mid-October. In fact, the rally thatstarted in late September 2001 and continued wellbeyond the year was the longest sustained rally sinceApril 2000. By mid-November, most major stock mar-kets were returning to double-digit growth ratesfollowing increased investor confidence on expectationsof an imminent economic recovery. The increased con-fidence partly reflected the rapid monetary policyresponse in industrial countries. However, in the firstquarter of 2002, equity prices were broadly unchangedin the United States and Europe, despite an improvedglobal outlook owing to concerns over the quality ofreported earnings in the wake of the unexpected col-lapse of Enron and other large corporations. Emergingeconomy equity markets strongly outperformed matureequity markets during the first quarter of 2002, withemerging Asia performing best, on the back of impres-sive gains by technology companies.

In foreign exchange markets, the U.S. dollarremained remarkably strong in 2001, notwithstandingthe economic downturn of the fourth quarter. Thisstrength continued in the first quarter of 2002 becausemarkets expected that the U.S. economy would be thefirst to rebound from the global slowdown. However,in April 2002, with sentiment toward the dollarbecoming mixed, and against the background ofincreased uncertainty in the outlook for corporateearnings, the dollar softened. The euro remained weakrelative to the dollar throughout 2001 and first quar-ter of 2002 but began to strengthen in April, whereasthe Japanese yen remained strong, limiting the dollar'sgains. In emerging markets, the Turkish lira fell morethan any other currency in 2001, after Turkey wasforced to float its currency early in the year. The SouthAfrican rand and to a lesser extent the Egyptianpound, the Brazilian real, and the Chilean peso alsoweakened significantly during the year. In contrast, theMexican peso and the currencies of the Czech Repub-lic, Hungary, and Poland strengthened notably. Inearly 2002, Argentina was forced to abandon its cur-rency board arrangement, and the Argentine pesoweakened sharply. As of May 2002, the South Africanrand had recovered from its 2001 low in the wake ofstronger commodity prices to be the emerging marketcurrency with the largest appreciation in the earlymonths of 2002, followed by the Indonesian rupiah,which benefited from progress in implementingreforms.

Key Developments in Emerging Marketand Industrial CountriesIn Latin American emerging market economies,growth slowed through much of 2001. This slowdownreflected the slowdown in industrial countries; difficultexternal financing conditions—particularly importantgiven the region's large external funding require-ments—that came to a head during the Argentine crisisin late 2001; and a range of country-specific factors.After the onset of the Argentine crisis, economic devel-opments diverged, with extremely difficult conditionsin Argentina but increasing signs that the slowdownwas ending elsewhere, particularly in those countrieswith the closest trading ties with the United States,including those of Central America and the Caribbean.Inflation remained low, mirroring both weak activityand improved policy frameworks.

The countries in emerging Asia, with the importantexceptions of China and India, generally experiencedsharp falls in growth rates in 2001, but began to showsigns of a turnaround in 2002, while region-wide infla-tion remained low. The path has been largely driven bythe external environment including the downturn inthe global information technology industry and oilprice movements. For most oil-importing countries,high prices in late 2000 and much of 2001 contributedto the weakening of incomes and demand in manycountries. Subsequently, weak oil prices in late 2001and early 2002 provided support for recovery, althoughin early 2002 price increases reduced this impetus. Theopposite pattern is true for the region's oil producers.Poorer external conditions during 2001 also spread todomestically exposed sectors, further lowering demand,confidence, and employment, with economic and polit-ical uncertainties in some countries putting downwardpressure on growth. In contrast, activity remained rela-tively buoyant in China and to a lesser extent in India,largely because both economies are less dependent onexternal trade than other economies in the region, butalso because of strong domestic demand, although theytoo have seen some slowing in growth since 2000.

Economic performance in central and easternEurope generally held up well compared with otheremerging market regions during the global slowdown.Not surprisingly, exports—which are largely directed tothe European Union—weakened in 2001 and early2002 as external demand slowed, partly offset by gainsin market share in some cases. The loss in externaldemand was largely offset in most cases by relativelyrobust domestic demand, generally underpinned bylower inflation and interest rates, strong investmentspending (often driven by foreign direct investment),and fiscal stimulus in several countries. There was animportant exception to this pattern. Turkey suffered itsworst recession in over fifty years in 2001, with theevents of September 11 setting back the tentative signs

6 A N N U A L R E P O R T 2 0 0 2


W O R L D E C O N O M I C A N D F I N A N C I A L D E V E L O P M E N T S I N F Y 2 0 0 2

of recovery that had emerged following the economicand financial crisis at the start of the year, particularlythrough their impact on trade, tourism, and financialmarket confidence. Real and financial indicators in late2001 and early 2002 suggested that conditions wereagain improving: capacity utilization increasedthroughout the second half of 2001, interest rates fellsignificantly after mid-October, and the exchange rateand stock market also strengthened.

Growth rates in the countries of the Commonwealthof Independent States remained remarkably resilient tothe global slowdown in 2001, falling only slightly to anaverage of 6 1/4 percent, the highest growth rate amongthe major developing and transition country regions.This was underpinned by continued robust growth inthe largest economies, which provided significant sup-port to the rest of the region given the strong tradeand financial linkages. In many cases, improved macro-economic stability and policy implementation, as wellas country-specific factors, supported robust growth.

Growth in Africa also held up relatively well in2001 and early 2002 compared with other parts of theworld, despite the weak external environment. The keyinfluences on the outlook for much of the region con-tinued to be the interaction between commoditymarket developments, the conduct of economic poli-cies, and the extent of armed conflict and other formsof civil tension. Fluctuations in oil prices have had vary-ing effects, with higher oil prices supporting activity inoil producers but having a harmful effect on the manyother commodity exporters in the region. Theseinclude many of the poorest countries, which have alsobeen affected by weakness in nonoil commodity prices.That said, both strong and weak performers can be

found within each of these groups, with the quality ofdomestic policies and the extent of conflict having akey impact on whether countries have been able toresist the external downturn.

Growth in the Middle East slowed considerably in2001 and early 2002, largely reflecting the global slow-down, lower oil production, and, after the September11 terrorist attacks, the regional security situation. Thecurtailment of oil production associated with O P E Cagreements to support flagging oil prices depressed realG D P in the oil-exporting countries, while the securitysituation dampened activity, including tourism, in par-ticular in Egypt, Israel, Jordan, and the Syrian ArabRepublic.

In the industrial countries, growth was weak in2001. The slowdown was especially marked in theUnited States and Canada, in part because growth hadbeen more robust over 2000. Both economies sawclear evidence of recovery in the early months of2002—with positive growth in the last quarter of 2001and a substantial acceleration in the first quarter of2002. Europe also saw a significant deceleration inactivity. Within Europe, activity was particularly weakin Germany and Italy, and relatively more robust inFrance and the United Kingdom, with the performanceof domestic demand accounting for many of these vari-ations across countries. Activity in Australia and NewZealand remained relatively strong, largely reflectingbuoyant domestic demand. In contrast, Japan sufferedits third and most severe recession of the last decade.While external factors promoted the slowdown, weak-ness in domestic demand was also a contributing factor.By early 2002, however, there were signs that the econ-omy was bottoming out.

A N N U A L R E P O R T 2 0 0 2 7


CHAPTER

IMF Surveillance in Action

In today's global economy, where economic devel-opments and policies in one country affect othercountries and financial market information is transmit-ted around the world instantaneously, the IMF's role inmonitoring economic and financial developments andpolicies in member countries is more vital than everbefore. The IMF has the mandate under its Articles ofAgreement to oversee the exchange rate policies of itsmember countries to ensure the effective operation ofthe international monetary system. It exercises this"surveillance" responsibility by holding regular discus-sions with its member countries about their economicand financial policies, and by continuously monitoringand assessing economic and financial developments atthe country, regional, and global levels. In these ways,the IMF can help signal dangers on the horizon andenable members to take early corrective policy actions.

IMF surveillance has evolved over time to reflectchanging global realities, and both the practice and theunderlying principles of IMF surveillance are reviewedby the Executive Board every two years (see Box 2.1).A central task is to make surveillance a more effectivevehicle for preventing crises and promoting a globaleconomic environment conducive to sustainablegrowth. The goal is neither the unrealistic aim of elimi-nating all risks of future crises nor an impracticalpromise to deliver definitive warnings about all futurecrises. Rather, the IMF's efforts focus on strengtheningincentives for country authorities and market partici-pants to assess risks appropriately and to base theirpolicies and investment strategies on these assessments.A well-functioning market economy draws its strengthand dynamism from a continuous search by producers,investors, and consumers for better results. This willalways lead to some degree of overshooting and correc-tion, particularly in asset markets. Thus the IMFencourages governments to adopt policies, includinginstitutional reforms, to strengthen the resilience ofmembers' economies in the face of harmful develop-ments and financial stress—notably throughappropriate exchange rate regimes; sound fiscal poli-cies; prudent borrowing and debt management

strategies; deeper, stronger, and more diversified finan-cial systems and domestic capital markets; and moreeffective social safety nets.

Equally important are policies that promote sustain-able growth and an open trade environment becausegrowth, trade, debt-servicing capacity, and external via-bility are inextricably linked. The IMF thus has a role toplay in promoting trade liberalization and has beenmoving toward increased coverage of market accessissues in its surveillance consultations with membercountries. It also encourages countries to liberalize tradeby providing technical assistance to member countries inits areas of expertise that lay the groundwork forincreased trade and by providing financial support forcountries developing more open trade regimes.

Effective surveillance and crisis prevention have twokey ingredients: sound policy advice and incentives toensure that this advice has an impact. The IMF is con-tinuing to strengthen its analytical capacity to identifysources of vulnerability as they emerge and to developstrategies to reduce vulnerabilities, promote stability,and foster growth. At the same time, it is payinggreater attention to the factors that determine theeffectiveness of its policy advice.

The IMF conducts surveillance in several ways—country (or bilateral) surveillance and global andregional (or multilateral) surveillance.• Country surveillance. As mandated in Article IV of

its Articles of Agreement, the IMF holds "ArticleIV" consultations, normally once every year, witheach member country about its economic policies.These consultations are complemented by regularanalysis of economic and financial developmentsprovided by IMF staff, informal contacts with staffand national authorities, and interim Board discus-sions as needed.

• Global surveillance. The IMF's Executive Board reg-ularly reviews international economic and financialmarket developments. The reviews are based partlyon the World Economic Outlook reports, prepared by

8 A N N U A L R E P O R T 2 0 0 2

2

* * *


I M F S U R V E I L L A N C E I N A C T I O N

Box 2.1IMF Biennial Surveillance ReviewThe Executive Board reviews the prin-ciples and the implementation of theIMF's surveillance approximately everytwo years. The latest biennial review ofsurveillance activities was completed inlarge part in April 2002. The reviewtook stock of the evolution of surveil-lance—both the framework withinwhich surveillance takes place and theactual conduct of surveillance.

Directors noted that further discus-sions on the review of surveillance andon various surveillance-related issues—including the IMF's transparencypolicy—would continue, but the reviewso far had yielded a number of impor-tant conclusions. First, the coverage ofsurveillance had expanded over theyears—from concentrating narrowly onmonetary, fiscal, and exchange ratepolicies, to a broader purview encom-passing external vulnerabilityassessments, external debt sustainabilityanalyses, financial sector vulnerabilities,and structural and institutional policies(see Chapter 3)—and that broadenedframework constituted a necessary andappropriate adaptation of surveillance toa changing global environment, mostnotably to the rapid expansion of inter-national capital flows. Second, IMFsurveillance had generally succeeded inembracing wider coverage without los-ing focus. The issues that were coveredin individual Article IV consultationswere generally determined by theirmacroeconomic relevance in country-specific circumstances. The currentsystem of multilateral (or global) sur-veillance was working well andmultilateral surveillance of capital mar-kets had been improved by the creationof the International Capital MarketsDepartment (ICM).

Given this overall record of coverageand focus, a number of specific areaswere identified where further efforts

were needed to ensure that IMF policyadvice was sound and persuasive.• More candid and comprehensive

assessments of exchange arrange-ments and exchange rates within theframework of macroeconomic poli-cies should become the normalpractice throughout themembership.

• Coverage of financial sector issuesshould be brought up to par withcoverage of other areas of surveil-lance. Voluntary participation inFinancial Sector Assessment Pro-grams (FSAPs) had provided forin-depth coverage of financial sectorissues. However, in the absence of amember's participation in an FSAP,the quality of financial sector surveil-lance had been uneven acrossmember countries, and mechanismshad to be found to improve thatsituation.

• To strengthen vulnerability assess-ments, analysis of debt sustainabilityhad to be improved, particularlythrough the use of meaningful stresstests and alternative scenarios. Also,greater attention had to be paid tothe private sector's balance-sheetexposure to interest rate, exchangerate, and general macroeconomicshocks, and to collecting the datarequired to assess that vulnerability.

• Coverage of institutional issues, suchas public sector and corporate gover-nance in certain countries, hadsometimes been hampered by a lackof expertise and should be strength-ened. Reports on the Observance ofStandards and Codes (ROSCs) and,generally speaking, the work onstandards and codes were importantinputs to meeting this objective.

• Structural issues outside the IMF'straditional areas of expertise were, attimes, key to a country's macroeco-

nomic situation and, thus, had to beaddressed by the IMF. To tacklesuch cases, the IMF should makeeffective use of the expertise ofappropriate outside institutions, inparticular the World Bank.

• There was some scope for enhancingthe focus of surveillance in individualcases and areas. In particular, cover-age of trade policies should bestrengthened by concentrating oncountries whose trade policies eitherhad appreciable global or regionalinfluence or had significant deleteri-ous effects on domesticmacroeconomic prospects.

• The results of multilateral (or global)surveillance exercises and the IMF'scomparative advantage in cross-country analyses should be reflectedin bilateral (or country) surveillancein a comprehensive and consistentmanner. Particular attention shouldcontinue to be paid to the systemicimpact of the policies of the largesteconomies in Article IV consultationswith those countries.

• Article IV consultations with coun-tries with IMF-supported programsshould provide an effective reassess-ment of economic conditions andpolicies; that required a freshness ofperspective and appropriate distancefrom day-to-day program implemen-tation.Directors stressed that, in many

instances, the IMF could usefully com-plement sound advice on economicpolicy objectives with discussions withcountry authorities of alternative waysto achieve those objectives. A n impor-tant component of such discussionswould be consideration of social, politi-cal, and institutional factors to enhanceownership of policy recommendationsand increase the likelihood of successfulpolicy implementation.

IMF staff usually twice a year, and reports on inter-national financial markets. In addition, the Boardholds frequent, informal discussions about worldeconomic and financial market developments.Regional surveillance. To supplement country con-sultations, the IMF also examines policies pursuedunder regional arrangements. It holds regular dis-

cussions with such regional economic institutions asthe European Union, the West African Economicand Monetary Union, the Central African Economicand Monetary Community, and the EasternCaribbean Currency Union. IMF management andstaff have also increased their participation inregional initiatives of member countries—including

A N N U A L R E P O R T 2 0 0 2 9


C H A P T E R 2

Box 2.2IMF Launches Quarterly Report on Global Financial MarketsOn March 14, 2002, the IMF issuedthe inaugural Global Financial StabilityReport—a new publication on thehealth of the world's financial system.The report, which will be publishedquarterly, aims at providing timely andcomprehensive coverage of both matureand emerging financial markets as partof the IMF's stepped-up tracking offinancial markets.

The rapid expansion of financial mar-kets during the past decade underscoresthe role that private sector capital flowsplay as an engine of world economicgrowth. But these flows can also be atthe heart of crisis developments. In aneffort to head off future crises, theGlobal Financial Stability Report seeksto deepen policymakers' understandingof the potential weaknesses in the sys-tem and to identify the fault lines thathave the potential to lead to crises.

The March 2002 issue weighed thestability of the international financial

system in light of an emerging globaleconomic recovery, paying particularattention to risks posed by a slower-than-expected economic recovery andby the recent surge in the use of com-plex credit risk transfer mechanisms,such as credit derivatives and debtswaps. The report also examined theaccuracy of selected early warning sys-tems—statistical models designed topredict financial crises—and reviewedsome alternative debt instruments thatemerging market borrowers could useto tap global capital markets.

The report is prepared by the IMF'sInternational Capital Markets Depart-ment, which was established in 2001 toenhance the IMF's surveillance, crisisprevention, and crisis managementactivities. It replaces both the annualInternational Capital Markets report,which has been published since 1980,and the quarterly Emerging MarketFinancing report, published since 2000.

the Southern African Development Community, theCommon Market of Eastern and Southern Africa,the Manila Framework Group, the Association ofSouth East Asian Nations, the Meetings of WesternHemisphere Finance Ministers, and the Gulf Coop-eration Council (see also Appendix IV).

• IMF management and staff also take part in policydiscussions of finance ministers, central bank gover-nors, and other officials in such country groups asthe Group of Seven major industrial countries, theAsia-Pacific Economic Cooperation forum, and theMahgreb countries associated with the EuropeanUnion (Algeria, Morocco, and Tunisia).

Country SurveillanceAn IMF staff team meets with government and centralbank officials of each member country, as well as othergroups—such as trade unions, employer groups,academics, legislative bodies, and financial market par-ticipants—generally once every year (with interimdiscussions held as needed), to review economic devel-opments and policies. These consultations touch onmajor aspects of macroeconomic and financial sectorpolicies, but they also cover other policies affecting acountry's macroeconomic performance, including,where relevant, structural economic policies andgovernance.

To provide the basis for country surveillance, anIMF staff team visits the country, collects economic

and financial information, and dis-cusses with the national authoritiesrecent economic developments andthe monetary, fiscal, and relevantstructural policies the country ispursuing. The Executive Directorfor the member country usuallyparticipates. The IMF staff teamnormally prepares a concludingstatement, or memorandum, sum-marizing the discussions with themember country and the findingsof the staff team, and leaves thisstatement with the national author-ities, who have the option ofpublishing it. On their return toheadquarters, IMF staff membersprepare a report describing the eco-nomic situation in the country andthe nature of the policy discussionswith the national authorities, andevaluating the country's policies.The Executive Board, where theentire membership is represented,then discusses the report. Thecountry is represented at the Boardmeeting by its Executive Director.

The views expressed by Executive Directors during themeeting are summarized by the Chairman of the Board(the Managing Director), or the Acting Chairman (aDeputy Managing Director), and a summing up is pro-duced. If the Executive Director representing themember country agrees, the full Article IV consultationreport is released to the public, together with the sum-mary text of the Board discussion and backgroundmaterial in the form of a Public Information Notice(PIN). Otherwise, a PIN alone may be issued. InFY2002 the Board conducted 130 Article IV consulta-tions with member countries (see Table 2.1). The PINsand Article IV reports are published on the IMFwebsite.

(For more details of the IMF's bilateral surveillance,such as Financial Sector Stability Assessments, seeChapter 3, under "Crisis Prevention.") In addition, theBoard assesses economic conditions and policies ofmember countries borrowing from the IMF throughdiscussions of the lending arrangements that supportthe member countries' economic programs (seeChapter 4).

Global SurveillanceThe Executive Board's conduct of global surveillancerelies heavily on staff reports on the World EconomicOutlook and international financial markets (see Box2.2), as well as sessions on world economic and marketdevelopments.

10 A N N U A L R E P O R T 2 0 0 2



World Economic OutlookThe World Economic Outlook reports feature compre-hensive analyses of prospects for the world economy,individual countries, and regions, and also examinetopical issues. These reports are prepared by the staffand discussed by the Executive Board usually twice ayear (and later published), but they may be producedand discussed more frequently if rapid changes in worldeconomic conditions warrant.

In FY2002 the Board discussed the World Eco-nomic Outlook on three occasions: two regulardiscussions were held in September 2001 and March2002, and an additional discussion was held in Decem-ber 2001 in the aftermath of the terrorist attacks in theUnited States of September 11, 2001. The two discus-sions during the 2001 calendar year focused on signs ofa slowdown in world economic growth, sharply albeittemporarily exacerbated by the events of September 11.By March 2002, however, there were encouraging indi-cations that the slowdown had bottomed out and thatglobal economic growth was recovering.

At its September 2001 meeting on the World Eco-nomic Outlook, the Board agreed that prospects forglobal growth had weakened since the last World Eco-nomic Outlook report had been released the previousMay. In particular, Directors noted the substantialdecline in growth in the United States over the pastyear; the serious deterioration in economic prospectsfor Japan; the weaker conditions and outlook inEurope; and the reduction in the projections forgrowth for most developing country regions. SlowerG D P growth in almost all regions had been accompa-nied by a sharp decline in trade growth, Directorsnoted. Financing conditions for emerging markets hadalso deteriorated, although Board members wereencouraged that the effects of contagion had beenmore moderate than in preceding episodes.

Directors considered that a number of interrelatedfactors had contributed to the slowdown, including areassessment of corporate profitability and an associatedadjustment in equity prices, higher energy and foodprices, and tightening of monetary policy to containdemand pressures in the United States and in Europe.More broadly, the faster-than-expected slowdown alsoreflected the strong cross-country trade and financiallinkages that were increasingly evident acrosscountries.

At their December 2001 meeting on revised projec-tions for the World Economic Outlook, Directorsdiscussed the impact of the September 11 attacks onthe world economy. They observed that, before theattacks, there appeared to be a reasonable prospect forrecovery in late 2001. However, more recent data, onwhich the interim World Economic Outlook revisionswere based, indicated that the situation before theattacks was weaker than had earlier been projected in

many areas, including in the United States, Europe,and Japan. Directors accordingly concluded that thetragic events of September 11 had exacerbated analready very difficult situation for the global economy.

In the aftermath of the September 11 attacks, con-sumer and business confidence had weakened furtheracross the globe, Directors observed. There was a sig-nificant initial impact on demand and activity,particularly in the United States. In financial markets,there had been a generalized shift away from riskyassets in both mature and emerging markets, includinga substantial deterioration in financing conditions foremerging market economies. Between the end of Sep-tember and early December 2001, however, financialmarkets strengthened, as equity markets recovered andthe earlier flight to quality was reversed. Movements inmajor exchange rates had been moderate, while com-modity prices had fallen back further, especially for oil,as the outlook for global growth had weakened.

The economic slowdown and worsening financingconditions had adversely affected many emerging mar-ket economies, Directors noted. Net capital flows,including foreign direct investment, were constrained.Those countries that required substantial externalfinancing were vulnerable to reassessments of economicprospects and to further shocks in international capitalmarkets.

Board members expressed concern that developingcountries and, in particular, the poorest countries werebeing hurt by weaker external demand and falling com-modity prices, with the oil exporters being particularlyaffected. Nonfuel commodity exporters would also beaffected by further weakness in already depressedprices, although, for some, the benefits from lower oilprices would limit the increase in their requirement forexternal financing. Thus, while growth was projectedto be relatively well sustained for the group as a whole,Directors were of the view that the prospects for indi-vidual countries varied widely.

Given the limitations of monetary policy in the thenprevailing environment of weak confidence and excesscapacity, most Directors agreed in their December dis-cussion that fiscal policy should also play a role,particularly through the operation of the automaticstabilizers.

Directors also pointed out that the agreementreached at the World Trade Organization meetings inDoha, Qatar (see Box 2.3 below), in November 2001to launch new trade negotiations was of particularimportance, as they could be expected to contributesubstantially to global economic growth over themedium term.

There had been a marked improvement in globaleconomic prospects by the time of the Board's March2002 discussion. Directors welcomed the increasingsigns that, since December 2001, the slowdown had

A N N U A L R E P O R T 2 0 0 2 11


C H A P T E R 2

Table 2.1Article IV Consultations Concluded in FY2002

Country NameAlbaniaAlgeriaAngolaAntigua and BarbudaArmeniaArubaAustriaAzerbaijanBahamasBangladeshBarbadosBelarusBelgiumBelizeBhutanBoliviaBosnia & HerzegovinaBrazilBrunei DarussalamBurkina FasoBurkina FasoCambodiaCameroonCanadaCape VerdeChadChileChina, P.R. ofComorosCongo, Democratic Rep. of theCongo, Rep. ofCosta RicaCote d'IvoireCzech RepublicDjiboutiDominicaEgyptEl SalvadorEquatorial GuineaEritreaEstoniaFinlandFranceGabonGambia, TheGeorgiaGermanyGhanaGreeceGrenadaGuatemalaHaitiHondurasHungaryIcelandIndiaIndonesiaIran, Islamic Rep. ofIrelandIsraelItalyJamaicaJapanJordanKazakhstanKenya

Board Date

July 13, 2001August 29, 2001March 29, 2002March 15, 2002May 21, 2001August 22, 2001June 11, 2001February 20, 2002August 1, 2001April 29, 2002November 26, 2001January 23, 2002March 1, 2002July 9, 2001May 7, 2001June 8, 2001February 25, 2002January 23, 2002March 4, 2002July 2, 2001April 9, 2002February 6, 2002July 16, 2001February 4, 2002June 15, 2001January 16, 2002July 16, 2001July 23, 2001July 18, 2001July 13, 2001February 6, 2002July 30, 2001August 31, 2001July 16, 2001November 30, 2001June 15, 2001October 31, 2001July 23, 2001August 31, 2001November 26, 2001June 27, 2001November 9, 2001October 26, 2001April 1, 2002July 13, 2001October 26, 2001October 24, 2001June 27, 2001February 22, 2002July 11, 2001May 14, 2001January 18, 2002October 5, 2001May 4, 2001May 2, 2001June 20, 2001April 26, 2002September 6, 2001August 1, 2001July 30, 2001November 5, 2001May 30, 2001August 3, 2001April 29, 2002January 23, 2002March 15, 2002

PIN Issued

July 27, 2001September 19, 2001

April 2, 2002September 7, 2001June 14, 2001March 8, 2002August 14, 2001May 15, 2002

February 19, 2002March 13, 2002August 2, 2001May 23, 2001June 25, 2001March 22, 2002February 7, 2002

July 16, 2001May 1, 2002March 1, 2002July 26, 2001March 12, 2002October 3, 2001February 25, 2002July 27, 2001August 24, 2001July 31, 2001July 20, 2001February 25, 2002April 24, 2002October 2, 2001July 25, 2001

July 13, 2001November 5, 2001

October 11, 2001

July 9, 2001November 21, 2001October 31, 2001May 3, 2002July 26, 2001October 31, 2001November 7, 2001August 9, 2001March 1, 2002July 20, 2001May 25, 2001February 8, 2002October 26, 2001May 18, 2001May 24, 2001August 14, 2001

September 18, 2001August 13, 2001August 6, 2001November 20, 2001June 6, 2001August 10, 2001May 3, 2002February 5, 2002April 19, 2002

Staff Report Published

July 27, 2001September 19, 2001

April 2, 2002September 7, 2001June 14, 2001March 8, 2002August 27, 2001June 7, 2002

February 19, 2002March 13, 2002August 27, 2001

June 25, 2001March 22, 2002

May 1, 2002March 1, 2002August 6, 2001March 12, 2002October 3, 2001February 25, 2002July 27, 2001

August 9, 2001July 30, 2001

April 24, 2002October 2, 2001July 25, 2001

July 20, 2001

July 9, 2001November 21, 2001November 5, 2001May 3, 2002August 20, 2001November 26, 2001November 7, 2001August 9, 2001March 15, 2002August 1, 2001

February 8, 2002

June 12, 2001

August 13, 2001August 3, 2001November 20, 2001June 14, 2001August 10, 2001

March 19, 2002April 19, 2002

12 A N N U A L R E P O R T 2 0 0 2



Table 2.1 (concluded)

Country Name

KiribatiKoreaKuwaitKyrgyz RepublicLatviaLebanonLesothoLiberiaLithuaniaMacedonia, FYRMadagascarMalaysiaMaldivesMaliMaltaMarshall Islands, Rep. of theMauritaniaMauritiusMexicoMoroccoNamibiaNepalNetherlandsNetherlands AntillesNew ZealandNicaraguaNigerNigeriaNorwayPalauParaguayPortugalRussian FederationSt. Vincent and the GrenadinesSamoaSan MarinoSao Tome & PrincipeSaudi ArabiaSenegalSierra LeoneSingaporeSlovak RepublicSloveniaSloveniaSpainSudanSurinameSwazilandSwedenSwitzerlandSyrian Arab RepublicTanzaniaThailandTongaTrinidad & TobagoTurkeyUkraineUnited Arab EmiratesUnited KingdomUnited StatesUzbekistanVietnamZambiaZimbabwe

Board Date

June 25, 2001February 11, 2002June 27, 2001November 30, 2001January 18, 2002October 17, 2001March 18, 2002February 25, 2002January 16, 2002March 4, 2002December 5, 2001August 29, 2001August 30, 2001December 17, 2001July 30, 2001January 18, 2002May 9, 2001May 14, 2001August 2, 2001July 11, 2001February 11, 2002August 31, 2001June 6, 2001May 7, 2001March 22, 2002September 19, 2001February 8, 2002June 29, 2001March 1, 2002January 4, 2002May 11, 2001March 25, 2002March 8, 2002January 28, 2002May 9, 2001December 5, 2001January 30, 2002October 10, 2001September 28, 2001March 11, 2002June 25, 2001July 27, 2001May 11, 2001March 20, 2002February 1, 2002November 14, 2001May 9, 2001March 20, 2002August 31, 2001May 9, 2001December 3, 2001September 24, 2001August 2, 2001September 4, 2001July 6, 2001April 15, 2002April 24, 2002October 12, 2001March 4, 2002July 27, 2001March 11, 2002November 21, 2001November 7, 2001December 14, 2001

PIN Issued

September 21, 2001February 12, 2002June 29, 2001December 19, 2001January 25, 2002October 29, 2001March 21, 2002July 18, 2002January 24, 2002March 8, 2002December 13, 2001November 2, 2001

January 9, 2002August 3, 2001February 22, 2002

May 22, 2001September 27, 2001August 2, 2001February 22, 2002September 21, 2001July 6, 2001May 17, 2001March 27, 2002October 2, 2001March 1, 2002August 6, 2001March 7, 2002March 28, 2002May 18, 2001April 26, 2002April 4, 2002February 19, 2002July 11, 2001December 21, 2001February 28, 2002November 7, 2001October 18, 2001

August 1, 2001May 21, 2001April 4, 2002February 28, 2002

May 24, 2001

September 25, 2001May 21, 2001

August 16, 2001October 31, 2001July 17, 2001April 19, 2002May 8, 2002

March 7, 2002August 14, 2001

January 4, 2002December 6, 2001June 19, 2002

Staff Report Published

September 21, 2001

July 20, 2001December 19, 2001January 25, 2002

May 3, 2002July 18, 2002January 24, 2002March 8, 2002

January 9, 2002August 3, 2001

May 22, 2001October 25, 2001November 13, 2001

October 3, 2001July 6, 2001May 17, 2001March 27, 2002October 2, 2001March 1, 2002August 6, 2001March 7, 2002March 28, 2002June 15, 2001April 26, 2002April 4, 2002February 19, 2002

December 21, 2001February 28, 2002

October 24, 2001

August 6, 2001May 21, 2001April 4, 2002March 13, 2002

September 25, 2001May 21, 2001

July 24, 2001

March 7, 2002August 14, 2001

January 9, 2002

June 25, 2002

A N N U A L R E P O R T 2 0 0 2 13©International Monetary Fund. Not for Redistribution

C H A P T E R 2

bottomed out, and that a global recovery was underway. This recovery was evident in the United States andCanada, and, to a lesser extent, in Europe and in somecountries in Asia. Financial markets had bounced backstrongly after the September 11 shock, commodityprices had begun to pick up, and emerging marketfinancing conditions had strengthened markedly. Nev-ertheless, different but serious concerns remained in anumber of countries, notably Japan and Argentina.

Directors observed that several factors underpinnedthe recovery. Most important was the substantial easingof macroeconomic policies in advanced economies—particularly the United States—and also in a number ofemerging economies, especially in Asia. The scope forsuch policy support owed much to earlier progress inlowering inflation, strengthening fiscal positions, andreducing other sources of vulnerability, which enabledthe membership to respond promptly and effectively tothe difficult situation that the world economy hadfaced the previous year. Directors also noted that theadjustment in inventories appeared to be well along inthe United States and some other advanced economies,and that this would also help boost production in theperiod ahead. The recovery in the major currency areashad also been supported by lower oil prices, althoughthis was less of a factor following the strong pickup inprices since late February 2002. Directors underscoredthe importance of stable oil prices for a durable worldeconomic recovery.

Overall, Directors agreed that the risks to the out-look had become more evenly balanced since theirDecember 2001 discussion. Indeed, recent indicatorsof confidence, employment, and activity in the UnitedStates had been surprisingly positive, suggesting thatthe recovery would be stronger than earlier projected.

At the same time, a number of potential downsiderisks in the outlook required continued attention,Directors noted. First, in part because of the synchro-nized slowdown, relatively little progress had beenmade in reducing persistent imbalances in the globaleconomy—notably, the high U.S. current accountdeficit and surpluses elsewhere, the low U.S. personalsaving rate, the apparent overvaluation of the dollarand undervaluation of the euro, and the relatively highhousehold and corporate debts in a number of coun-tries. With the United States leading the recovery,Directors considered that these imbalances could, atleast in the short term, widen further.

In discussing the implications of this prospect forthe global outlook, Directors observed that the contin-ued favorable outlook for U.S. productivity growth andcapital inflows might reduce the risk of a disorderlyunwinding of the current account imbalances. Mostagreed that in the major currency areas, policies—espe-cially structural policies—should be formulated toensure an orderly reduction of current account imbal-

ances that would enhance the sustainability of theglobal recovery.

Directors noted a second source of risk to the out-look. Following the strong rebound in past months,global equity prices again appeared to be richly valuedand might reflect an excessively optimistic outlook forcorporate earnings. If earnings growth were to provedisappointing, there would be a renewed risk of a weak-ening in financial markets, confidence, and activity. Theanalysis of the impact of asset prices on consumption,provided in Chapter 2 of the April 2002 World Eco-nomic Outlook, indicated that asset prices, in particularequity prices, had become more important over time asa determinant of consumer spending. Given the agingof populations in industrial countries, as well as contin-ued financial market development, this trend was likelyto continue, suggesting that developments in assetprices might have become increasingly important in theformulation of macroeconomic policies.

Specific concerns highlighted by Directors includedthe adverse effects the continuing economic difficultiesin Japan and Argentina—while different in nature—could have on other countries in their regions. MostDirectors regretted the decision by the U.S. authoritiesin early 2002 to raise tariffs on steel imports and theprospect of retaliation by other countries. They reiter-ated the critical importance for all countries to resistprotectionist pressures and to ensure that substantiveprogress is made with multilateral trade negotiationsunder the Doha round.

Directors concurred that macroeconomic policies inmost industrial countries should remain generally sup-portive of the emerging recovery. However, theynoted that, with the exception of Japan, thereappeared little need for additional policy easing andthat, in countries where the recovery was moreadvanced, attention should turn in time toward revers-ing earlier monetary policy easing. Over the mediumterm, policy should seek to support sustainablegrowth, while aiming for an orderly reduction inglobal imbalances. This would require continuedstructural reforms to encourage growth in the euroarea and in some Asian emerging markets; decisiveaction in Japan to reinvigorate the economy; and forthe United States to ensure that medium-term fiscaltargets were met. Directors also underscored theimportance of using the recovery to make furtherprogress in reducing vulnerabilities, including throughaccelerated efforts to address looming problems cre-ated by the aging of the populations of industrialcountries; a sustained effort to achieve balanced bud-gets in the euro area; development of a medium-termfiscal consolidation plan in Japan; reform of the corpo-rate and financial sectors in Asia; and medium-termefforts to strengthen fiscal positions in China, India,and many Latin American countries.

14 A N N U A L R E P O R T 2 0 0 2©International Monetary Fund. Not for Redistribution


Sustained broad-based economic growth would becrucial to achieve higher living standards and an endur-ing reduction in poverty in the developing countries,Directors agreed. They noted that, despite encouragingprogress in a number of countries, G D P growth in sub-Saharan Africa remained well below what would beneeded to reduce poverty significantly. National poli-cies would have to play the lead in improving economicperformance, especially those designed to improve theconditions for savings, investment, and private sectoractivity. Stronger international support of sound poli-cies would also be essential. In this connection,Directors welcomed the progress made at the Monter-rey, Mexico, Conference on Financing forDevelopment in March 2002 (see Box 5.6), includingthe announcement of increased aid targets by the Euro-pean Union and the United States. They stressed, inparticular, the vital importance of phasing out trade-distorting subsidies and giving greater access in worldmarkets to exports from developing countries.

Major Currency Areas. On the prospects for themajor currency areas, Directors agreed that recent indi-cators increasingly pointed to recovery in the UnitedStates. Confidence and equity markets had picked up,household spending had remained strong, and manu-facturing output had stabilized. Some Directorsconsidered that activity could pick up even morerapidly than currently projected, especially given thesize of the policy stimulus in the pipeline and the con-tinued resilience of productivity growth. Some otherDirectors, however, pointed to the possibility of a lesssustained or less resilient upturn, for example if lowcorporate profitability or excess capacity constrainedinvestment growth, equity prices failed to sustainrecent gains, or households rebuilt savings.

Given the balance of risks, Directors supported theU.S. Federal Reserve Board's decision to keep interestrates on hold for the time being. While they noted thatmonetary policy should not be tightened prematurely,they agreed some tightening would be required if eco-nomic activity continued to strengthen. Directorsagreed that no further fiscal stimulus was warranted atthis stage. While recognizing that the deterioration inthe fiscal position over the past year was the result of acombination of factors—including tax cuts, a stimuluspackage, and the emergency and security spendingmeasures taken in the aftermath of September 11—Directors considered that the time had come to turnattention to the efforts needed over the medium termto preserve fiscal balance and address pressures stem-ming from the social security system.

Directors expressed serious concern about economicconditions and prospects in Japan. The economy wasin its third recession in a decade, confidence and activ-ity remained very weak, and the banking sectorexperienced severe strains. While welcoming initiatives

and noting some signs of a possible bottoming out inthe fall of activity, Directors urged the authorities topush ahead vigorously with measures directed at bankand corporate sector restructuring, which wouldremain the key to restoring confidence and reestablish-ing prospects for solid growth. Although there waslittle scope for further macroeconomic stimulus, theyalso agreed that monetary policy needed to remainfocused on ending deflation. Given the high publicdebt and rising long-term interest rates, Directorsstressed the need for a clear and credible commitmentby the Japanese authorities to medium-term fiscal con-solidation, backed by reforms to the tax system, publicenterprises, and the health sector.

Directors were encouraged that recent business con-fidence surveys and a pickup in industrial productionpointed to an emerging recovery in the euro area.While the recovery was likely to be somewhat slowerand to come later than in the United States, a numberof Board members pointed to the contribution thatEurope's strong fundamentals had made to global sta-bility. Building on recent progress, further policyreforms to support a strong and sustained recoveryshould nevertheless have continued to receive the high-est priority. Directors emphasized the need for euroarea economies to move ahead with structural reforms,in particular in the financial sector, labor markets, andpension systems. They noted that the introduction ofeuro notes and coins in January 2002 meant that suchstructural reforms should be even more beneficial.Directors supported the European Central Bank'smonetary policy stance, which was to keep interest rateson hold while being ready to move in either directionas macroeconomic developments unfolded. On the fis-cal side, they said that countries with sizable structuraldeficits would need to strengthen their fiscal positionsas growth picked up, both to provide scope for theautomatic stabilizers to function during subsequentslowdowns, and to help tackle rising fiscal pressuresfrom aging populations.

Emerging Markets. Directors noted that the prospec-tive recovery in industrial countries should play acentral role in supporting activity in emerging markets,along with continued efforts to strengthen economicfundamentals to reduce vulnerability and enhance pro-ductivity growth. In Asia, which—with the exceptionof China and India—was particularly hard hit by theglobal slowdown, there were clear signs of a pickup inactivity, aided by a nascent strengthening in the elec-tronics sector and easier macroeconomic policies in anumber of countries. The emerging recovery wouldneed to be supported by ongoing reforms across theregion, especially in financial and corporate sectors. InIndia, structural fiscal reforms were needed to back thesubstantial consolidation required, Directors consid-ered, while China should move ahead with reforms to


C H A P T E R 2

address the competitive challenges arising from W T Omembership and, in particular, tackle difficulties in thestate-owned enterprises, the banking sector, and thepension system.

Directors considered the diverse prospects facingLatin America. They noted with concern that the situa-tion in Argentina remained very difficult, and that asignificant contraction in output in 2002 appearedunavoidable. While Directors noted the steps theauthorities had taken to address the difficult economicsituation, they stressed the need to rein in the fiscaldeficit and strengthen the banking system, and urgedthe authorities to move quickly to put in place a sus-tainable economic program that could receive financialsupport from the international community. Spilloversfrom Argentina on other regional economies initiallyappeared to have been generally limited (with theexception of Uruguay), although they remained apotential risk. Directors noted that the recovery waslikely to be strongest in Mexico and Central America,two regions that are closely linked economically to theUnited States, as well as in some Andean countries. Inother countries the pace of recovery was likely to bemore subdued.

Directors welcomed the analysis in the World Eco-nomic Outlook of debt crises in Latin America. Theycautioned against generalizations across countries andacross different stages of their reform processes. Never-theless, they noted the extent to which the region'srelative closure to external trade, higher macroeco-nomic volatility, relatively underdeveloped domesticfinancial markets, and low saving rates might help toexplain the high incidence of debt crises in this region.Many countries had made progress in recent years inreducing vulnerability, mainly by adopting more flexi-ble exchange rate regimes and developing domesticcapital markets. The analysis had again underscored thebenefits that countries in the region could reap fromfurther progress in strengthening fiscal positions as wellas from continuing reforms of their trade and financialsystems.

Growth among most candidates in central and east-ern Europe for membership in the European Union hadbeen generally well sustained during the global slow-down. Robust domestic demand had offset weakerexport performance, and growth was expected to pickup further as the global recovery took hold. While thehigh current account deficits in many of these countrieshad so far been readily financed by direct investmentand other capital inflows, they nevertheless representeda source of vulnerability that, Directors agreed, under-scored the importance of ongoing fiscal discipline andstructural reforms to ensure a positive climate forinvestment and growth. Directors welcomed the recentimprovements in economic indicators in Turkey. Theyexpected that strengthening confidence and exports

should underpin a sustained recovery in 2002, providedthe strong implementation of sound macroeconomicand structural policies continued.

Growth in the countries of the Commonwealth ofIndependent States (CIS) had also remained remarkablyresilient to the global slowdown, Directors observed,although they considered that the pace of activity in2002 might weaken somewhat—mainly as a result ofslowing demand in the region's oil-exporting countries.Board members welcomed the accelerated structuralreforms in Russia, while noting that efforts to improvethe investment climate remained a key priority. For theregion as a whole, the central challenge continued tobe to accelerate progress in structural reforms, notablyin the areas of institution-building and governance,enterprise and financial sector restructuring, and inreducing the role of the state. The high level of exter-nal debt in a number of the poorest CIS countriescontinued to be a serious concern and would requireongoing close monitoring.

Directors were encouraged that growth in Africahad held up well in 2001 and was expected to remainrelatively strong in 2002. The outlook for much of theregion continued to depend heavily on commoditymarket developments, and on further progress ineradicating armed conflict and other sources of civiltension. It would also be important to contain the riseof famine in the southern African regions. Directorshighlighted the central role that sound economic poli-cies had played in raising significantly per capita incomegrowth in strongly performing African countries inrecent years. Sustained economic growth and diversifi-cation would require faster structural reforms,including improvements in public service delivery andinfrastructure, trade liberalization, and strengthenedregulatory institutions and more secure and stableproperty rights. Directors welcomed the New Partner-ship for African Development, endorsed in July 2001by the leaders of the Organization for African Unity(OAU) , which emphasized African ownership, leader-ship, and accountability in improving the foundationsfor growth and eradicating poverty. They stressed thatthese efforts would need to be supported by externalassistance, including the further reduction of tradebarriers, increased development aid—especially forHIV/AIDS—and support for capacity-building efforts(see Box 5.5).

Directors observed that growth in the Middle Eastwas projected to weaken in 2002, although muchwould depend on oil market developments and theimpact of the regional security situation. They notedthat the adverse impact of lower oil prices in 2001 onoil-exporting countries had been limited by the pru-dent macroeconomic policies of recent years. Over themedium term, a key policy priority in many countrieswas to continue efforts to diversify production into

16 A N N U A L R E P O R T 2 0 0 2



nonenergy sectors and hence to reduce dependence onoil revenues.

Background Analysis. Directors welcomed the analy-sis of previous recessions and recoveries in industrialcountries (Chapter 3 of the April 2002 World EconomicOutlook). They noted that the synchronicity of therecent global slowdown had much in common withpast downturns, whereas the relatively unsynchronizedrecessions of the early 1990s were an exception thatreflected different shocks in different countries. In therecent downturn, the collapse in investment spendingassociated with the bursting of the technology bubblewas also consistent with sharp drops in business fixedinvestment, which occurred typically in the lead-up torecessions in recent decades.

The mildness of the recent global slowdown was inline with the historical trend toward shallower reces-sions. However, the short duration and mildness of therecent downturn did not imply that the recovery wouldbe slow or weak. Increases in interest rates prior to therecent downturns were smaller than before, whichreflected relatively low inflation during the previousexpansion. This helped to explain why the subsequentdownturns had been relatively mild.

Regarding monetary policies in a low-inflation envi-ronment, Directors agreed that a major reason for theremarkable decline in inflation among industrial coun-tries over recent decades had been the change inemphasis of central banks toward price stability andassociated beneficial changes in private sector behavior.In discussing some of the policy challenges facing cen-tral banks, many Directors cautioned against drawingpolicy conclusions prematurely, noting that in severalcountries the low-inflation environment had not signif-icantly hampered the effectiveness of monetary policy.More generally, in their view, the credibility of anti-inflationary monetary policy was an important assetthat should be preserved.

International Capital Markets and GlobalFinancial StabilityIn June 2001, the Board held its last review of develop-ments in the mature and emerging international capitalmarkets in the context of an annual InternationalCapital Markets report. Published since 1980, Interna-tional Capital Markets has been combined withanother report, Emerging Market Financing, in a newpublication, the Global Financial Stability Report (seeBox 2.2.). This report focuses on current conditions inglobal financial markets, and is intended to help theIMF look forward and draw policy implications tostrengthen its role in promoting international financialstability and preventing crises. The frequency of thereport—every quarter—and its focus on contemporaryissues should enable the Board to keep up with fast-changing events in financial markets.

The new report is one element in a broad effort bythe IMF to strengthen surveillance of internationalcapital markets. Other elements include the WorldEconomic Outlook reports, the Board's regular reviewsof world economic and market developments, theongoing work on private sector involvement in pre-venting and resolving financial crises, work onstandards and codes, the Financial Sector AssessmentProgram (FSAP), and Special Data DisseminationStandards (SDDS).

International Capital Markets Report, June 2001In their June 2001 discussion, Directors noted that thepreceding year had been dominated by periods ofincreased asset price volatility, slowing growth in theglobal economy, and crises in key emerging markets.Adjustments in capital markets were evident in arepricing of risks in a wide range of equity and high-yield bond markets. Directors were of the view that thehigh correlation of asset price movements across coun-tries reflected the globalization of finance and theincreasing tendency of investors to invest on the basisof industrial sectors or credit ratings, rather than geo-graphic location.

Slowing global economic growth had been bothanticipated by, and reflected in, a sharp fall in globalequity markets—particularly in technology stocks—anda dramatic rise in high-yield credit spreads, althoughfinancial markets had later recovered significantly aftermonetary policy was eased in the major countries.Directors noted that there had been a remarkabledegree of co-movement in asset prices among the majoradvanced countries, particularly between European andU.S. stock markets. The key exception was Japan, whichseemed somewhat delinked from global markets. Thisreflected the more important role of domestic than for-eign investors and the remaining weakness in thecountry's corporate and financial sectors.

In discussing the risks facing international financialmarkets in the period ahead, Directors consideredthat—although the declines in equity markets had cor-rected part of the imbalances of recent years—there wasstill a risk that market sentiment might remain vulnera-ble to U.S. economic developments. Other sources ofvulnerability could be concerns about the ability ofmonetary policy to offset economic weakness and aboutthe sustainability of high productivity growth. In addi-tion, if the sustainability of the current high U.S.household, corporate, and external imbalances cameinto question, a significant and potentially disorderlyrebalancing of domestic and international portfoliosmight occur, which could affect key exchange rate rela-tionships. The assessment of risks was complicated by anumber of structural developments, including increasingconcentration in the major financial systems, a growingreliance on over-the-counter (OTC) derivatives, and

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structural changes in major government securities mar-kets. Those structural changes appeared to have reducedtransparency about the distribution of financial risks inthe international financial system; greater disclosurecould help to enhance market discipline and officialoversight. Board members noted, nonetheless, that U.S.banks appeared to be more robust than in previousdownturns and were sufficiently well capitalized toweather a possible credit deterioration.

Directors reviewed the risks in Europe and Japan.Regarding Europe, Directors cautioned that, whilebanks remained strong, capital markets might be morevulnerable to spillovers and contagion from volatility inU.S. capital markets as well as to common shocks thatappeared to affect these large economies simultane-ously. Directors also expressed concern that loanprovisioning in the Japanese banking sector might beinadequate and that this sector also had significantexposures to bond and equity prices in the Japanesemarket. At the same time, the Japanese banking sectorseemed vulnerable to continued poor domestic macro-economic performance, large unanticipated externaleconomic and financial shocks, and volatility in Japan-ese financial markets.

While noting that domestic developments remainedthe key drivers of capital flows to emerging markets,Directors considered that, in the past year, emergingmarkets' access to international capital markets hadbeen strongly affected both by events in the maturemarkets and by crises in emerging markets. As a result,many emerging markets had found it difficult to main-tain continuous market access. While, in earlier periods,exchange rate and banking crises in emerging marketsand the ensuing contagion had led to an abrupt loss ofmarkets access, during the past year many emergingmarkets had lost market access mainly because of devel-opments in mature markets, such as the collapse ofequity prices on the Nasdaq exchange in the UnitedStates.

Directors agreed that a shift in the investor base foremerging market instruments had increased the vulner-ability of capital-importing emerging market countriesto shifts in investor sentiment or investment strategies.Because holdings of emerging market assets by "dedi-cated" investors remained limited, "crossover"investors—those who could place a small fraction oftheir assets in emerging market instruments, with largeeffects on these markets—had come to dominate thecurrent investor base. Directors emphasized that thoseinvestors were likely to reduce or eliminate their hold-ings of emerging market assets if the outlook foremerging markets deteriorated, if more attractiveinvestment opportunities in mature markets arose, or ifmanagers became more risk averse. That could result inan abrupt loss of market access for emerging marketborrowers that was not necessarily related to changes in

emerging market fundamentals. Although Directorsnoted that emerging market borrowers had shown wel-come adaptability—particularly through syndicatedloans, prefunding of obligations, and the use of alter-nate currencies—to the "on-off" nature of marketaccess, such adaptations could sharply increase the costof access to international financial markets. It was diffi-cult to assess whether that shift would be long lasting.In any event, emerging market economies should notbe deterred from pursuing sound and transparent poli-cies. Over time, that could help to restore the role ofinvestors in providing financing for emerging marketsand hence reducing volatility.

Against the background of data pointing to a furtherweakening of global economic prospects, Directorsreviewed the outlook for capital flows to emergingmarkets. They acknowledged that, while those flowswere influenced by developments in mature marketsand prospects for the global economy, the domesticpolicies in capital-importing countries could also be afactor in their distribution. With lower interest ratesand a relatively soft landing, the gross issuance of inter-national bonds, equities, and syndicated loans couldincrease, and net flows to emerging markets—particu-larly non-oil-exporting emerging markets—recover inline with the global economic recovery. Nevertheless,Directors also recognized that if the global slowdownin economic growth were sharper than expected, theconsequence could be a marked slowdown in capitalflows to emerging markets, including in foreign directinvestment (FDI). Directors were of the view that,since FDI flows remained the single largest source ofcapital in all regions, the staff should monitor themclosely and assess the conditions and policies thatwould foster greater stability.

Major Government Securities Markets. Directorsagreed that the structural changes under way in themajor government securities markets had implicationsfor financial markets and should be kept under review.They noted that the shrinking supply of U.S. treasurysecurities had already resulted in important changes inU.S. and international financial markets, as market par-ticipants had come increasingly to rely on otherinstruments, including swaps. Directors noted, how-ever, that private financial instruments might not easily,or fully, substitute for treasury securities as domesticand international safe havens.

Some harmonization of regulation and convergenceof issuance and trading practices had already occurredin government securities markets in the euro area. Overtime, greater convergence and integration was likely topromote the emergence of a uniform euro-area bench-mark yield curve and an increase in euro-area marketliquidity. At the same time, the region's corporatebond market had become more integrated and hadgrown rapidly.

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Directors discussed the situation in Japan, where lin-gering economic uncertainty and financial imbalanceshad impaired corporate financial activity and fuelled arise in the supply of government debt. The combina-tion of a low-interest-rate environment and technicallydriven changes in the supply of and demand for Japan-ese government bonds (JGB), along with shortcomingsin the market infrastructure that had adversely affectedmarket liquidity, had led to JGB market volatility whilespreads in the corporate bond market had been signifi-cantly compressed. That situation presented financialinstitutions with challenges in managing risk, and alsohighlighted the challenges to the Japanese authoritiesof managing the costs and risks of a large and growingsupply of government debt. Directors noted the stepstaken to improve the JGB market infrastructure toenhance the efficiency and attractiveness of the JGBmarket to domestic and international investors.

Financial Sector Consolidation in Emerging Markets.Many emerging markets had undergone financial sectorconsolidation, although its extent and pace had variedin different regions. Directors saw this process as onefacet of the continuing globalization of internationalfinancial activities, and akin to a "quiet" opening of cap-ital accounts. While the migration of financial activitiesto low-cost financial centers was profoundly altering thefinancial systems of many emerging markets, it alsolinked them to international financial markets.

Directors pointed out that a number of aspects ofthe consolidation process differed from the experienceof mature markets, including the role of cross-bordermergers and acquisitions, which had been rare inmature markets. Furthermore, consolidation in emerg-ing markets had frequently been a vehicle forrestructuring the financial system following majorfinancial crises, whereas, in mature markets, consolida-tion had more often been designed to reduce excesscapacity. Also, the authorities had played a major rolein fostering consolidation in emerging markets,whereas market forces had been the predominant forcefor consolidation in mature markets.

The process of financial sector consolidation inemerging markets raised a number of complex policyissues, Directors observed, including how to create suf-ficient market discipline and official supervision forinstitutions that were "too-big-to-fail." The experienceof mature markets indicated that dealing with theseproblems would involve strengthening supervisorycapacity to monitor the activities of large complexfinancial institutions, and establishing clear entry andexit rules and prompt corrective action for distressedinstitutions.

Directors noted that the emergence of financial con-glomerates providing a wide range of products andservices complicated prudential supervision and regula-tion. These conglomerates raised the issue of how the

regulatory agencies overseeing banks, securities, andinsurance companies should be structured. Directorsconsidered that this would depend on the specific cir-cumstances of each country or region.

On the topic of e-finance, Directors noted that,while its development was still at an early stage in mostemerging markets, there had been steady growth in theapplication of the Internet to the production and deliv-ery of financial services. This underscored the need forimproved liquidity management at the level of financialinstitutions and better supervision.

Global Financial Stability Report,February-March 2002In the Board's February inaugural discussion of theGlobal Financial Stability Report (published in March),Directors welcomed the recovery in global markets andthe reduction in global risk aversion since the fourthquarter of 2001. They noted the remarkable turn-around in market sentiment regarding the strength andspeed of a U.S.-led global economic recovery. Overall,financial markets had responded well to the uncertain-ties that arose during the slowdown and following theevents of September 11, and had recovered quicklyonce it became clear that economic prospects wereimproving.

Mature equity markets in early 2002 had shownlackluster performance. Directors noted that thisreflected widespread concerns about accounting prob-lems that, among other things, reduced transparencyon the true extent of the leveraging undertaken bycorporations and financial institutions during the boomyears.

Turning to the emerging markets, Directors agreedthat contagion from the default and devaluation inArgentina had been subdued. More careful discrimina-tion by investors across emerging markets, a variety oftechnical factors, and the adoption of sound economicpolicies geared toward more flexible exchange rates,higher official reserves, lower short-term debt, andstronger current account positions had contributed tothe resilience of emerging markets during the fourthquarter of 2001 and beyond. However, risks remained,as events in Argentina were still unfolding and therewas still significant uncertainty. Evidence of contagionmight take the form of slower capital flows, includingforeign direct investment, to some emerging markets.Furthermore, Directors observed that any unexpectedchanges in the global risk environment or the globaleconomic outlook could adversely affect emerging mar-ket borrowers.

Stability Implications of Global Financial MarketConditions. While the international financial system hadremained resilient in the face of serious disruptions,global financial conditions had worsened during 2001across a broad range of markets, institutions, and

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sectors, Directors observed. Deteriorating credit qualityand corporate earnings were reflected in higher corpo-rate bond spreads and lower stock prices. These priceadjustments had adversely affected the balance sheets ofcorporations and households. The slowdown had alsoaffected financial institutions, although the major insti-tutions in the United States and Europe seemed to bewell capitalized. Directors acknowledged the height-ened strains in Japan's financial system, and underscoredthe importance of decisive moves by the Japaneseauthorities to deal with long-standing weaknesses in thebanking, insurance, and corporate sectors.

Turning to the outlook for global financial marketconditions, Directors agreed that the main risks relatedto the potential for a subdued or delayed global recov-ery. With asset prices seemingly reflecting expectationsof a near-term economic rebound, a subdued ordelayed recovery could lead to market corrections.Directors noted that, under this scenario, Japan andemerging market borrowers could experience particu-larly adverse effects. The adjustment could also includea temporary and selective withdrawal from risk takingby financial institutions. At the same time, theresilience of the international financial system duringfinancial disruptions in the 1990s was cause for opti-mism that the adjustments would be manageable.

Credit-Risk Transfer Market. Directors noted thatcredit-risk transfer markets had grown very rapidly, anindication of the useful role they played in spreadingrisk among economic agents and contributing to port-folio diversification, and in providing alternative sourcesof liquidity. Concerns about the activities of new andless-regulated participants in credit markets could beaddressed by improved disclosure and transparency.Many Directors also called for strengthened oversightof nonbank and nonfinancial entities that were active infinancial markets. They expressed concern that regula-tory arbitrage might shift risks to institutions leastcapable of managing them, and that accounting andauditing standards and practices might be deficient inseveral major countries. These Directors suggested thata top priority in the period ahead should be to updatethe supervisory and regulatory frameworks to keep pacewith the evolving credit-risk transfer markets.

Further Development of Early Warning SystemModels. Directors agreed that the development of mod-els to provide advance warning of a country'svulnerability to crisis and of the buildup of systemic riskin financial markets was important for effective marketsurveillance and crisis prevention. Although such earlywarnings could be useful in helping the IMF to providetimely advice to prevent crises, given their current lim-ited predictive power, early warning system (EWS)models should be used carefully and together withqualitative and other methods of vulnerability assess-ment. With this caveat in mind, Directors supported

efforts to refine the EWS models currently being usedin the IMF's work. Those efforts could also comple-ment work at the national level on early warningsystems. Noting that currency crises were not the onlythreat to financial stability, most Directors welcomedefforts to develop the basic building blocks of a moregeneral early warning system able to predict other typesof crises, including debt and banking crises.

Alternative Financing Instruments. Directors urgedcaution on the use of alternative debt instruments,other than "plain-vanilla" bonds and regular loanissues, to maintain access to global capital markets intimes of financial difficulties. While acknowledging thatsome of those instruments might be useful under cer-tain conditions, Directors stressed that they should notsubstitute for strong economic policies and sound debtmanagement practices—the main foundation for soundand sustainable access by emerging market borrowersto international capital markets. They noted that wherehigh bond yield spreads reflected investor concernsabout a country's solvency, the use of some of thosealternative instruments could make the problemsworse.

Regional Surveillance

Central African Economicand Monetary CommunityIn May 2001, Executive Directors discussed develop-ments and policy issues in the Central AfricanEconomic and Monetary Community ( C E M A C ) ,whose members include Cameroon, the Central AfricanRepublic, Chad, the Republic of Congo, EquatorialGuinea, and Gabon. They commended the authoritiesof the C E M A C countries for the progress made during2000 in strengthening economic integration. The pol-icy dialogue with the C E M A C regional institutions hadserved as a useful complement to bilateral surveillance,given the broadening range of policy issues dealt withat the regional level. They encouraged the authoritiesto continue to carry forward the process of integrationat the next meeting of the Council of Ministers.

Directors noted that the sharp increase in oil-producing C E M A C countries' export earnings andgovernment revenues in 2000 had led to a large reduc-tion in the community's overall fiscal and externalimbalances and to a strong recovery in the internationalreserves of the Bank of Central African States (BEAC).They viewed the competitive position of C E M A C asbroadly adequate but noted that the economic situa-tion remained fragile. The region was vulnerable toexternal shocks, especially to a drop in the price ofcrude oil and a weakening of the U.S. dollar against theeuro, to which the C F A franc is pegged. In that con-text, Directors stressed the need for sustainedimplementation of structural reforms and efforts to

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diversify the economic base and produce a stablemacroeconomic environment. They expressed concernabout the sharp increase in domestic demand in 2001,which was expected to lead to a widening of the exter-nal current account deficit. Consequently, Directorsalso stressed the importance of further fiscal consolida-tion with a focus on strict control of governmentexpenditure and saving of the oil revenue windfalls.

Notwithstanding progress made in 2000, an acceler-ation of the pace of economic integration wouldenhance C E M A C ' s credibility. Directors encouragedthe authorities to strengthen regional institutions andestablish a solid framework for close coordination offiscal and structural policies, which would provide firmsupport to the common exchange rate regime. Thesuccess of efforts to strengthen integration woulddepend on the implementation of both coherent andcomprehensive convergence programs by individualmember countries and the implementation of an effec-tive system of mutual regional surveillance of membercountries' policies. Such a system should include bind-ing rules and quantitative criteria, periodic reviews, andmechanisms to compel individual countries to takecorrective measures in case of slippages.

Directors encouraged the authorities to improve theconduct of monetary policy and to take steps tostrengthen the functioning of the regional interbankmoney market, which was essential for an efficient dis-tribution of bank liquidity. They welcomed thedecision to phase out the automatic granting of centralbank credit to governments but urged member coun-tries to proceed very cautiously on a proposal to havethe central bank guarantee government security issues.

While acknowledging the recent progress made inrehabilitating the banking sector, Directors expressedconcern at its continuing fragility. There was amplescope for a further strengthening of banks' manage-ment and supervision of the banking system. A largenumber of banks did not comply with the core pruden-tial ratios. Directors stressed the importance ofcompleting the programs of bank restructuring and pri-vatizations. They also underscored the importance ofstrengthening the Central African Banking Commis-sion (COBAC) and keeping it free of politicalinterference, and of reforming judicial systems toensure that they did not contribute to a weakening ofnational banking systems.

Directors welcomed the member countries' decisionto further liberalize trade through a simplification ofthe present structure of the common external tariff, areduction of average tariff rates, and the elimination ofremaining intraregional barriers. To enable them toreap the benefits of economies of scale and strengthendomestic enterprises' competitiveness, Directorsencouraged the authorities to work on common sec-toral policies that are critical to regional integration,

focusing on infrastructure, transportation, communica-tion, and energy. They also stressed the importance ofcreating a favorable environment for private investmentby implementing initiatives in business laws, investmentcharters, and competition policy.

Directors encouraged the authorities to seek techni-cal assistance to enhance and harmonize the productionof regional statistics, especially in national accounts,consumer price indices, trade, balance of payments, andgovernment financial operations. They considered thatthe IMF should provide technical assistance for dataimprovement, as well as to promote macroeconomicconvergence and enhance COBAC' s capacity to carryout regional surveillance.

West African Economic and Monetary UnionIn October 2001, the Board discussed recent economicdevelopments and the main policy issues in the WestAfrican Economic and Monetary Union (WAEMU) ,whose members include Benin, Burkina Faso, Coted'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, andTogo. The slowdown in the W A E M U region's overallgrowth performance that began in 1999 had contin-ued. The negative effects of adverse externaldevelopments on the macroeconomic performance ofthe region had been compounded by a deterioration ofthe economic and financial situation in Cote d'Ivoire.There was a possibility that this economic slowdowncould be prolonged beyond 2001 if the global environ-ment and commodity prices weakened further. Againstthis background, Directors underlined the necessity ofstrengthening macroeconomic policies, deepeningstructural reforms, and improving competitiveness inthe W A E M U countries to achieve the ultimate goals ofeconomic integration in terms of growth and povertyreduction.

Directors commended the authorities of theW A E M U for the progress on the integration process in2000, with the entry into force of the customs unionand the steps taken to implement the Convergence,Stability, Growth and Solidarity Pact, which wasadopted in December 1999. While welcoming adop-tion of the medium-term convergence programs by allcountries, Directors noted that owing to weaknesses inpolicy implementation and the economic slowdown inthe region, compliance with the regional convergencecriteria by member countries had proved difficult, asindicated by the situation at the end of 2000. Theybelieved that observing the convergence criteria by theend of 2002 would imply a more forceful political com-mitment, the implementation of corrective measures bymember countries' governments, and a reinforcementof the institutional capacities at both the national leveland on the part of the W A E M U Commission to over-see the convergence process. Directors attachedparticular importance to a stronger political commit-

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ment on the part of member governments to removeremaining obstacles to the creation of a single regionalmarket and the establishment of a full-fledged customsunion. They also emphasized the importance of exter-nal support in moving the integration process forwardand, in particular, the role of technical assistance instrengthening the regional institutions and ensuring theeffective implementation of the various regional policyinitiatives.

A prudent monetary policy had resulted in a furtheraccumulation of foreign assets of the Central Bank ofWest African States (BCEAO) and an inflation ratebroadly in line with that of the euro zone, Directorsnoted. The BCEAO's key policy rates had not beenadjusted since mid-2000, and they considered thatthere could be scope for greater flexibility in monetarymanagement in light of the slowdown in economicactivity. However, Directors emphasized the criticalimportance of sound fiscal policies and the associatedcontainment of the governments' domestic financingneeds in supporting an appropriate monetary policy. Inthis connection, they drew particular attention to theneed to bring public debt down to sustainable levelsand to avoid arrears.

Directors underscored the importance of deepeningthe regional interbank market and achieving greaterintegration of the W A E M U region's financial marketsin facilitating private economic growth and fosteringfinancial stability. They welcomed the decision to elimi-nate outstanding central bank credits to governmentsand to establish a regional securities market for mem-ber countries' governments, although theyrecommended a realistic implementation schedule.Directors encouraged the authorities to identify andeliminate the obstacles to the regional interbank mar-ket. Those reforms would facilitate the financing offiscal deficits from nonbank sources, enhance theBCEAO's ability to manage liquidity in the bankingsystem through market mechanisms, and promote thedevelopment of an efficient and competitive financialsector.

Despite the progress over the past ten years in reha-bilitating the banking sector and conducting aneffective supervision of banks, compliance with therecently revised prudential arrangements and regula-tions on internal controls appeared inadequate. Steps tostrengthen banks' loan portfolios in the region shouldinclude measures to improve the observance of pruden-tial ratios by banks, strengthen loan-recoverymechanisms, and improve the judicial environment.Directors noted that more effective banking supervisionwas essential for the successful development of aregional financial market.

Directors supported recent steps to harmonize indi-rect taxation in the W A E M U , formulate a draftcommon investment code, strengthen common sec-

toral policies, and establish structural funds, all ofwhich should contribute to the reduction of regionaldisparities. They encouraged the authorities to moveforcefully in addressing the remaining agenda, includ-ing harmonizing taxation of petroleum products,promoting common tax regulations and a concertedeffort to control tax exemptions, and making necessaryimprovements in the taxation of small businesses.

The external competitiveness of the W A E M Ueconomies was adequate on the basis of a number oftraditional exchange rate indicators, Directors agreed.In view of the longer-term structural problems beset-ting the W A E M U economies, however, an overridingpriority for the authorities should be to implementpolicies aimed at broadening the productive base,improving productivity, and enhancing cost efficiencyin the provision of key public utilities and services.Directors encouraged the authorities to develop andmonitor nontraditional competitiveness indicators,such as export market shares.

Directors noted the efforts under way to integratethe W A E M U into the regional arrangement of theEconomic Community of West African States(ECOWAS)1 with a view to creating a larger regionalmarket and extending the common monetary frame-work to cover a broader group of countries in theregion. To achieve this goal, it would be essential tofurther harmonize macroeconomic policies and tradepolicies between the W A E M U and non-WAEMUmembers of ECOWAS and to establish a credible sur-veillance mechanism to promote convergence amongmember states. Notwithstanding the desirability ofsuch increased convergence and despite the strongpolitical support underpinning the integration processwithin ECOWAS, the goal of achieving a single mone-tary union in West Africa by 2004 appeared veryambitious, owing to a range of economic reasons andinstitutional capacity constraints.

Directors believed that a strategy for regional inte-gration would need to include the production of timelyand reliable regional statistics, especially on nationalaccounts, domestic debt, foreign trade, balance of pay-ments, and the adoption of new indices to measuremovements in prices and factor costs.

Monetary and Exchange Policies of the EuroArea ana Trade Policies of the European UnionIn October 2001, Executive Directors discussed themonetary and exchange rate policies of the euro-areacountries and developments in trade policies of theEuropean Union.

1Comprising Benin, Burkina Faso, Cape Verde, Cote d'lvoire, TheGambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nige-ria, Senegal, Sierra Leone, and Togo.

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Policies of the Euro Area. Directors noted that in theface of large and global disturbances—including theearlier rise in energy prices, the downward correction inequity markets, and the marked slowdown in worldtrade growth—the euro area's economic expansion hadproven less resilient than anticipated. Against thisalready sluggish background, the economic repercus-sions of the events of September 11 were likely todampen near-term growth prospects further. Nonethe-less, the area's macroeconomic fundamentals weresound, with low underlying inflation and much-strengthened fiscal positions, complemented bysupportive policies that provide a base for a new cyclicalupswing.

The area's cyclical setback should not detract fromthe considerable macroeconomic achievements of thelast few years that were rooted in price stability,employment-friendly wage setting, fiscal consolidation,and a measure of structural reform. Those elements hadprovided the basis for faster income growth and jobcreation, especially in those countries that had imple-mented labor market reforms and sustained wagemoderation. Structural rigidities remain pronounced,however, and Directors urged that reform efforts bestepped up across the area, especially in countries wherelabor market reforms had been lagging in recent years.More broadly, they highlighted the positive impact thatgrowth-supporting macroeconomic and structural poli-cies by the euro-area countries would have on globaleconomic prospects.

As for monetary policy, Directors noted that risks toprice stability were receding and that the EuropeanCentral Bank (ECB) had properly reversed a significantportion of the monetary tightening it undertook in2000. They commended the swift action by the E C B ,in concert with the U.S. Federal Reserve and othercentral banks, to shore up confidence and provide suffi-cient liquidity to the banking system in the aftermathof the events of September 11.

Looking ahead, Directors expected risks to price sta-bility to diminish further, particularly as weaker growthprospects and abating price pressures had increased thelikelihood of continued wage moderation in 2002. Therecent growth in M 3 in excess of the ECB's referencevalue appeared to some extent to reflect temporaryvelocity shocks related, among other things, to portfo-lio shifts and should therefore not be given undueweight in policy assessments. Against this background,Directors saw room for further monetary policy easing,particularly if the euro appreciated. A number of Direc-tors encouraged the authorities to continue their effortsto improve market understanding of the policy frame-work underlying the ECB's monetary decisions.

In discussing the factors responsible for the weak-ness of the euro's external value, many Directors notedthe role played by the much steeper rise of stock mar-

ket capitalization in the United States than in the euroarea, the ongoing international diversification by euro-area investors, and the increased issuance bynonresidents of euro-denominated liabilities.

On fiscal policy, Directors strongly endorsed theobjective, embedded in the Stability and Growth Pact(SGP),2 that member countries reach and maintainbudgetary positions either close to balance or in surplusover the medium term. This objective provided ananchor for assuring fiscal discipline while allowing forbudget outcomes to vary over the cycle and acrosscountries, as required for a well-functioning monetaryunion with a high degree of fiscal decentralization.

In considering how this objective might best beachieved, Directors discussed the merits of a frameworkthat would combine the free play of automatic stabiliz-ers with adherence to preannounced expenditure paths.In the view of a number of Directors, a key advantageof this approach would be to safeguard the medium-term orientation of the SGP while providing astabilizing framework for monitoring each memberstate's position relative to its medium-term deficitobjective. In contrast, focusing on meeting annualnominal deficit targets would, in the face of the globalslowdown, require offsetting the operation of the auto-matic stabilizers, thus delaying the projected recovery.Other Directors, however, considered that reference toexpenditure paths could usefully support the achieve-ment of medium-term SGP objectives but should notreplace nominal deficit targets.

Directors welcomed recent indications that, albeitwith variations across countries, fiscal developments forthe area as a whole broadly appeared to strike an appro-priate balance between cyclical considerations andmedium-term consolidation objectives. Most Directorsagreed that, especially in light of the current general-ized slowdown, the automatic stabilizers should beallowed to work. They generally did not see the needfor significant discretionary fiscal policy actions tocounteract the growth slowdown at that point, in viewof the likely temporary nature of the adverse shocks andthe effects such actions would have on fiscal positions.

Resolute and broad-based structural reforms wouldplay a key role in raising the area's growth potentialand rebuilding business and consumer confidence.Directors welcomed the recent progress made towardmore competitive product markets. They looked for-ward to further steps being taken in areas such as publicprocurement, state aid, administrative reforms, and thereduction of the regulatory burden on business. Theyregretted that relatively little had been done to address

2The European Council's June 1997 agreement to secure bud-getary discipline in member states during the final stage of EuropeanEconomic and Monetary Union; it also called for annually updatedmedium-term stability programs.


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the work disincentives associated with tax and socialbenefits systems in many euro-area countries or to freeup labor markets, including through more flexiblewage-formation processes. Referring to the progressmade by some countries on the basis of partial steps,Directors urged the authorities to aim for the majorimprovements in economic performance that shouldaccrue from a more vigorous implementation of labormarket reforms. Some Directors considered that arenewed effort toward structural reforms, aimed atenhancing the area's productivity growth rate, couldalso contribute to a stronger euro over time.

Directors expressed their appreciation for the inten-sive preparations that had been made to ensure asmooth changeover to euro banknotes and coins andwelcomed assurances that the changeover would notlead to an increase in prices. They looked forward to asuccessful completion of this reform of unprecedentedscope, which should result in greater price transparencyand enhanced competition.

Referring to the integration of capital markets asone of the greatest potential benefits of EuropeanEconomic and Monetary Union (EMU), Directorsexpressed the hope that the recommendations of theLamfalussy Report3 for streamlining the legislativeprocess would soon come into play and encouraged theauthorities to speed up implementation of the FinancialServices Action Plan. Integrated capital markets posednew challenges to financial crisis prevention and man-agement, and there was a need for significantstrengthening of information exchanges among super-visors and of their decision-making processes.

Directors considered that further improvements inthe availability, timeliness, and quality of euro-areastatistics would be highly desirable, particularly forshort-term cyclical indicators and balance of paymentsstatistics, and they urged the authorities to continuetheir efforts to make improvements in these areas.

Directors welcomed the completion of threeReports on Standards and Codes (ROSCs) for the euroarea (covering payment systems issues and the trans-parency of monetary policy and payments systemoversight) and expressed broad agreement with theirfindings.

Recent Development in EU Trade Policies. Regardingthe trade policies of the European Union (EU) as awhole, Directors expressed their conviction that thenew Doha trade round would provide a much-needed

3Alexandre Lamfalussy (Chairman) and others, 2001, Final Reportof the Committee of Wise Men on the Regulation of European SecuritiesMarkets (Brussels: European Union, Council of Economic andFinance Ministers [ECOFIN], February 15); available on the Internetat http://europa.eu.int/comm/internal_market/en/finances/gen-eral/lamfalussyen.pdf.

boost to global growth prospects and urged the EU tocontinue to accord high priority to reaching agreementon the scope of such a round and to show leadershipand flexibility to further the negotiations. They wel-comed the EU's "Everything-but-Arms" initiative forthe least-developed countries and the proposed steps tosimplify the EU's Generalized System of Preferences.Directors emphasized that while those initiatives wouldbe helpful in improving market access for eligible coun-tries, more rapid progress in opening highly protectedsectors to all trading partners would not only benefitdeveloping countries but also entail significant gains forthe EU itself In this regard, they highlighted theessential contribution that a comprehensive reform ofthe EU's Common Agricultural Policy would make toboth supporting trade liberalization and preparing forthe EU's enlargement.

Trade and Market Access IssuesIn September 2001, the Board discussed the role ofthe IMF in trade. Directors agreed that the IMF had asubstantial role to play in supporting an open interna-tional trading system and trade liberalization. Theysaw four avenues through which the IMF could makean effective contribution. First, it should continue tohighlight the need for the successful launch of the newDoha trade round (see Box 2.3) and the benefits itcould bring, both by raising living standards in allcountries and by ensuring a stable world tradingsystem.

Second, Directors agreed, the IMF should continueto address trade issues and support trade liberalizationin the context of surveillance and IMF-supported pro-grams where appropriate. Some progress had beenmade in focusing on market access issues in Article IVconsultations with industrial countries, but moreneeded to be done to identify practices that impededthe exports of developing countries. Developing coun-tries should also be encouraged to continue tradeliberalization efforts to improve efficiency and fostersustainable growth. Directors emphasized that tradereforms should be designed with appropriate sequenc-ing and with due regard to their impact—particularly inthe short term—on revenue and the current account.In the context of IMF-supported programs, any condi-tionality pertaining to trade measures should beconsistent with the guidelines and evolving practice forstreamlining conditionality.

Third, Directors considered that technical assistancefrom the IMF should continue to play a vital role inlaying the groundwork for successful trade liberaliza-tion. Reforms by members in the areas of the IMF'sparticular expertise—namely, revenue systems and taxand customs administration—had often been essentialin facilitating a smooth transition to more liberal traderegimes, with minimal impact on fiscal revenue.

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Fourth, the IMF should continueto cooperate closely with the WorldTrade Organization (WTO) and theWorld Bank to avoid duplication andto ensure that the work of the threeinstitutions on trade was comple-mentary. Noting the strategicimportance of trade for sustainablegrowth and poverty reduction in thepoorest countries, Directors wel-comed the cooperative efforts of theIMF, the World Bank, the W T O ,and others in revitalizing the Inte-grated Framework for Trade-RelatedTechnical Assistance. They sup-ported the efforts of the World Bankand the IMF to help poor countries"mainstream" trade into their overalldevelopment and poverty reductionstrategies, and, within that frame-work, to better target andcoordinate technical assistance toimprove its effectiveness.

Directors agreed that the IMF'sfinancing facilities were generallyadequate to support members'efforts to liberalize trade. The IMFwas well placed to assist members,given the importance of a stablemacroeconomic environment, anappropriate exchange rate policy,and the overall incentive frameworkfor the success of trade liberalizationefforts. In addition to the revenueand balance of payments implica-tions of trade reform, Directors identified other areaswhere they thought further work, in collaboration withthe World Bank, was needed in the design of trade lib-eralization, including the appropriate sequencing oftrade liberalization; the impact on the poor; the short-run adjustment costs in terms of output andemployment, and measures to mitigate these costs; andthe potential for export diversification in relevantcases.

In the communique issued following its meeting onApril 20, 2002, the International Monetary and Finan-

Box 2.3Doha Development AgendaThe November 9-14, 2001, FourthMinisterial Conference of the WorldTrade Organization (WTO), held inDoha, Qatar, launched a new round ofmultilateral trade negotiations—theDoha Development Agenda. The newround is the ninth since the signing ofthe General Agreement on Tariffs andTrade (GATT) in 1947 and the firstsince the conclusion of the UruguayRound in Marrakech in 1994, whichled to the establishment of the W T O .

The new round is comprehensiveand aims to liberalize trade across awide range of tradable goods and ser-vices and to update and strengthen therules of the multilateral trading system.It also extends the work of the W T Ointo essentially new areas, such asinvestment, competition policy, and theenvironment. Rule-making constitutesa significant portion of the work pro-gram and is aimed at clarifying andimproving disciplines on trade remedies(for example, antidumping measures),regional trade agreements, trade-relatedintellectual property rights, and thedispute settlement mechanism.

The fuller integration of developingcountries into the trading system is acommon theme of the Doha agenda.The Ministerial Declaration adopted at

the Doha conference seeks to placethe needs and interests of the develop-ing countries at the heart of the workprogram. This is manifested by theimportance it attaches to including theobjective of duty- and quota-free mar-ket access for least-developed-country(LDC) producers, rules that takeaccount of the special circumstancesand implementation constraints ofdeveloping countries, and trade-related technical assistance andcapacity-building programs. Thedevelopment provisions in the declara-tion include commitments to makespecial and differential treatment moreprecise, effective, and operational andfor special work programs for L D C sand small economies to promote theirintegration into the world tradingsystem.

The launch of the new round sent aclear signal rejecting inward-lookingpolicies and protectionism and providesa boost to market confidence andglobal prospects. For the new round tosucceed, however, the intentions setout in the Doha agenda will need to betranslated into actions including theopening up of markets, particularly forgoods and services of greatest impor-tance to developing countries.

cial Committee of the IMF's Board of Governors notedthat enlarging market access for developing countriesand phasing out trade-distorting subsidies would bene-fit both developed and developing countries. TheCommittee welcomed the commitment, reiterated atthe United Nations Conference in Monterrey, Mexicoin March 2002, to work toward the objective of duty -and quota-free market access for the exports of theleast-developed countries. It also noted the potentialfor increased opportunities from lowering trade barriersamong developing countries.


CHAPTER

Strengthening the International Financial System

D.iscussions of how to reform the internationalfinancial system took center stage in 1998 in the after-math of the crises in the Asian countries. Since then,much has been done to improve the IMF's capacity forcrisis prevention and the architecture of the interna-tional financial system more generally. Specifically,initiatives have been launched to improve the IMF'sanalysis of countries' vulnerability; to increase thetransparency of economic policymaking by membercountries as well as of the IMF's own policies andoperations; to promote timely and accurate reportingto the IMF and publication of economic data within aframework of internationally accepted standards; tostrengthen financial sectors, including through pruden-tial supervision; and to encourage the adoption ofconsistent monetary and exchange rate regimes lessprone to crisis. As a result, policies have been strength-ened in many countries. The resilience of the globaleconomy and the international financial system in theface of the economic slowdown of 2001 and the eventsof September 11 suggests that these efforts are begin-ning to bear fruit.

Nevertheless, it would be unrealistic to supposethat all member countries will always be able to avoidcrises. Thus the IMF has also been working tostrengthen its capacity to assist members to resolvecrises. During FY2002, the Board discussed two mainaspects of this work. First, it examined how to helpmembers cope with difficulties, when they arise, ofmaintaining their access to capital markets in a fashionthat also maintains the stability of the internationalfinancial system. Second, in relation to extreme caseswhen a member needs to restructure its financialobligations, the Board investigated frameworks forsovereign debt restructuring that would lead membersto be more inclined to approach their creditors at anearly stage, before delay destroys value and increasesthe scale of economic disruption. At the same time,the Board recognized that care should be taken in thedesign of a new framework to avoid inducing countriesto look to default as an easy way of avoiding neededadjustments.

Another key area of work to strengthen the interna-tional financial system—the international effort againstmoney laundering—took on heightened importance inthe wake of the events of September 11, 2001. Thoseevents prompted a reexamination at national and inter-national levels of mechanisms to promote and enforcelaws combating not just money laundering but also thefinancing of terrorism. In this context, the IMF dis-cussed how it should intensify its contribution to theseinternational efforts, and work advanced on severalfronts.

This chapter describes the progress made in theareas of crisis prevention (external vulnerability, trans-parency, standards and codes, and strengtheningfinancial sectors), crisis resolution (including sovereigndebt restructuring), and combating money launderingand the financing of terrorism up to April 2002. It alsocovers work done in the related areas of offshorefinancial center assessments and capital account liberal-ization. For IMF surveillance of international capitalmarkets during the year, see Chapter 2. In addition,more detailed information on the initiatives that havebeen launched can be found on the IMF website.

Crisis Prevention

Assessing External VulnerabilityThe crises of the late 1990s were in many ways differ-ent from earlier crises and prompted a reevaluation oftraditional methods of assessing a member's vulner-ability to changes in external circumstances. Thisreevaluation has reflected the increased role of privatefinancing in emerging markets, the increased intercon-nectedness of markets across the globe, and the linksbetween external financing difficulties and distress inthe financial and corporate sectors—links formed partlyby pressures on a country's exchange rate. With theprevention of crises and the promotion of financialstability among its top priorities, the IMF has strength-ened its analysis of the vulnerability of membercountries to changes in external circumstances and, inparticular, to capital market conditions.

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3


S T R E N G T H E N I N G T H E I N T E R N A T I O N A L F I N A N C I A L S Y S T E M

In October 2001, the Executive Board took stock ofthe progress in monitoring members' external vulnera-bility on a more continuous basis, especially foremerging market economies, whose access to interna-tional capital markets is often not certain. Directorswelcomed the increased efforts to combine qualitativeanalysis reflecting individual country circumstanceswith vulnerability indicators and other quantitativetools, and the improved integration of bilateral andmultilateral surveillance activities, as crises can emanatefrom either advanced or emerging market economies.They noted that the use of information on markets andmarket developments in vulnerability assessments wasbeing further strengthened by the work of the newInternational Capital Markets Department.

Directors observed that the IMF was drawing sys-tematically on a number of separate inputs:• The latest revisions to the World Economic Outlook.

These are the starting point for any assessment ofvulnerabilities because a key objective is to captureinfluences from the global economy on emergingmarket countries, including through the explicitconsideration of adverse scenarios.

• Early warning system models. These models estimatethe likelihood of a balance of payments crisis basedon a combination of vulnerability indicators. Whilework continues on improving their performance,these models still miss many crises and predict othersthat do not occur, and are likely to remain imper-fect, somewhat mechanical, signaling tools; as suchthey need to be qualified by detailed country analysisand used cautiously.

• Financing requirements. Where there is a risk that acountry's access to global financial markets maybecome difficult or be interrupted, detailed estimatesof its external financing needs and prospectivesources and uses of funds are important. The poten-tial for liquidity problems is also reflected in thework on reserve adequacy, which takes into accountindicators such as the ratio of reserves to short-termexternal debt, and stress testing of the balance ofpayments. This work on reserve adequacy and thework on assessing the determinants of spreads andratings are useful to inform preventive policies.

• Market information and contagion risks. Besides thedirect information content of foreign exchangespreads on borrowing costs for individual countries,the analysis of spreads serves to focus attention onchanges in market perceptions and as such sharpensthe discussion of contagion. The new InternationalCapital Markets Department is responsible for sys-tematically drawing on market information as well asrefining tools to understand markets and marketbehavior.

• Financial sector vulnerability assessments. The IMF'sspecialized knowledge about the financial sectors of

its members is a key input into the IMF's evaluationof vulnerabilities. Evaluations under the FinancialSector Assessment Program (FSAP)—jointly spon-sored by the IMF and World Bank—help to assessthe robustness of the financial sector through stresstests and alternative scenarios. For all countries, thestaff remains actively involved in financial sectormonitoring and advice.

• Area department expertise. The specialist knowledgeof the IMF's area departments on their countriesprovides a broader perspective and judgment on thetools used for vulnerability assessments.

The increased focus on vulnerability and appropriatepolicy responses has further highlighted the significanceof addressing gaps and deficiencies in the required data.The IMF's Special Data Dissemination Standard(SDDS) already provides an agreed framework for mak-ing available data on reserves and external debt. Otherdata needed for vulnerability assessments include thoseon foreign exchange exposures of the financial sectorand the nonfinancial corporate sectors, and countries'financing needs—including their reliance on rollovers,trade finance, and bond finance. Directors encouragedstaff to focus more intensively on these informationalneeds to ensure that data availability improves overtime, and stressed that many countries would requiretechnical assistance to achieve this.

Strengthened vulnerability assessments allow fortimely policy adjustments to forestall external crises.Directors agreed that the IMF had an important role toplay in involving national authorities in the discussionon vulnerabilities and in convincing them of theurgency of such measures, while information on possi-ble future crises had to be kept strictly confidential.They underscored the role of the Board—through, forexample, applying peer pressure and charging manage-ment explicitly to take action to express heightenedconcern on the part of the IMF. In this regard, it wasall the more essential that the results of the staff workon vulnerability be communicated to Executive Direc-tors in a timely fashion.

Work to reduce external vulnerabilities of membercountries has continued to involve the development ofpolicy guidelines. Guidelines for Public Debt Manage-ment, developed by the IMF and the World Bank, werepublished at the end of FY2001. Guidelines for ForeignExchange Reserve Management were also developed inclose collaboration with reserve management entitiesfrom a broad group of member countries and interna-tional institutions and published in September 2001(see Box 3.1). In October 2001, the Executive Boardconsidered a paper on issues related to reserve ade-quacy and management, including the implications ofthe capital account approach to assessing reserve ade-quacy for reserve management. The paper was also


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Box 3.1Board Discusses Guidelines for Foreign Exchange Reserve Management

During their September 2001 reviewof the Guidelines for Foreign ExchangeReserve Management, subsequentlypublished by the I M F , the Board notedthat the guidelines would serve as a setof basic principles for countries to drawupon in formulating sound reservemanagement policies and practices.Directors welcomed the voluntarynature of the guidelines and agreedthat their scope and coverage wereappropriate. The focus on a prudentrisk management framework, and theemphasis on transparency and account-ability frameworks, provided a basis fordisseminating sound reserve manage-ment practices. Such practicescomplemented prudent macroeco-nomic policies and sound financialsectors, which were critical for buildingcountries' resilience to shocks and pre-venting financial crises.

Directors also expressed appreciationfor the feedback received from a broadgroup of member countries andinternational institutions in a compre-hensive outreach process organizedduring the preparation of the guide-

lines. This process had strengthenedmembers' sense of ownership of theguidelines and helped to ensure thatthe guidelines were in line with gener-ally accepted sound practices. Inparticular, reserve managers had wel-comed the focus of the guidelines onbroadly applicable principles, whileavoiding prescriptive practices, so as toensure their relevance for members witha wide range of institutional structuresat different stages of development.

Since there was no universally applic-able set of practices for all countries,implementing the guidelines should bedone in a way that took into accountspecific country circumstances. In dis-cussing the potential use undersurveillance, and in line with the volun-tary nature of the guidelines, Directorsagreed that the guidelines could beused to inform discussion between theauthorities and the IMF on key areasrequiring improvement in reserve man-agement but should not be treated asrigid requirements or formal bench-marks for assessing reservemanagement.

meant to assist countries in formulating strategies forinvesting reserve assets and managing risk and to com-plement existing guidelines on reserve management. Anext step will be to consider reserve adequacy in thecontext of a broader approach to external liquiditymanagement, including external debt management.

The agenda for further work on vulnerability assess-ment is broad and evolving, and Directors havediscussed a number of potential improvements to thevarious inputs into the assessments. The prioritiesahead include work on national balance sheetapproaches to crisis prevention and resolution, and onfinancial sector indicators. In addition, continuingefforts will be made to better understand marketdynamics, to identify developments in individual coun-tries that may have implications for other members,and to take careful account of the aggregated effects onthe global economy of similar policies synchronizedacross a number of countries.

TransparencyIncreased transparency, in both economic policy and ineconomic and financial data, can strengthen a marketparticipant's ability to assess credit risks appropriatelyand so reduce the likelihood of crises and lessen their

severity when they do occur. To thisend, the IMF has promoted thetransparency of its members' policies,undertaken a wide-reaching programto improve public understanding ofits own policies and operations, andencouraged feedback from nationalauthorities and from the public ontransparency and other key policyinitiatives. The IMF website hasbeen a primary channel for theseefforts.

There has been a dramatic changein the last few years in the IMF'spublication policy and the availabilityof information about the IMF andmembers' policies. Before 1994, asfar as country information was con-cerned, little more thanresearch-oriented working papersand some background papers to Arti-cle IV staff reports were published bythe IMF. The only publicly availableinformation on an Article IV consul-tation was usually a brief summary inthe IMF's Annual Report. Details ofIMF-supported programs were con-sidered confidential. Now the IMFpublishes a wealth of informationabout its policy advice, lendingarrangements, finances, and policies

and assessments on key topics.The IMF took an important step in bringing greater

transparency to the IMF's bilateral surveillance when itlaunched Public (originally Press) Information Notices(PINs) in mid-1997. As of April 30, 2002, PINs sum-marizing the Executive Board's Article IV consultationson the economic situation of member countries hadbeen published for 90 percent of the IMF membership,up from 56 percent at end-1998. But more notably,full Article IV staff reports are now published when thecountry concerned agrees. Between June 1999, whenthe Board decided to authorize the release of Article IVstaff reports on a voluntary basis, and end-April 2002,106 members have published 177 reports. Participationhas been uneven, however, with publication rates high-est for advanced, Western Hemisphere, and Centraland Eastern European members.

The change in transparency with respect to IMF-supported programs has been as important. Chairman'sstatements, news briefs, and press releases followingExecutive Board discussion of the use of IMF resourcesare now released on a routine basis. There is apresumption that the documents setting out theauthorities' intentions under their IMF-supported pro-grams will be released to the public, and 96 percent of

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all such documents have been published since January2001, when the Board approved the publication of allsuch documents. In January 2001, the Board agreedto the release of stand-alone staff reports on IMF-supported programs (Use of Fund Resources reports),subject to the member's consent. Through end-April2002, 55 percent of stand-alone reports on IMF-supported programs had been released, withpublication rates highest among the countries ofCentral and Eastern Europe.

The IMF is now more transparent in its policies andoperations. Staff papers discussing key policy issues andsummaries of Executive Board discussions of thesepapers are now released. In addition, the IMF hasengaged in a dialogue with the public on some key pol-icy issues. For example, public comment has beensought on the IMF's review of conditionality throughthe Internet and through seminars with wide participa-tion of academics, policymakers, and nongovernmentalorganizations. A number of outside (as well as internal)evaluations of IMF activities and programs have beenconducted in recent years, and the results of almost allof those studies have been published. Finally, anIndependent Evaluation Office (IEO), which was estab-lished to complement the IMF's existing review andevaluation procedures, began operations in FY2002.

Standards and CodesThe spread of internationally accepted standards andcodes of good practice in policymaking and institu-tional arrangements contributes to the better workingof markets by allowing participants and policymakers tocompare information on country practices againstagreed benchmarks. Standards are also designed toimprove transparency and good governance, andincrease the accountability and credibility of policy.

Launched in response to the Asian crises, the IMF'sstandards and codes initiative has encouraged thedevelopment and improvement of internationally rec-ognized standards in key areas; led to assessments ofcountries' observance of standards; and helped coun-tries implement standards, including through theprovision of technical assistance. Seeking and respond-ing to feedback from authorities and the private sectorhave been important aspects of the initiative. DuringFY2002, progress was made on all these fronts.

Fourth Review of IMF's Data Standards InitiativesIn July 2001, the Executive Board concluded policy

discussions on the IMF's Special Data DisseminationStandard (SDDS) and General Data Dissemination Sys-tem (GDDS). This was the Fourth Review of the IMF'sData Standards Initiatives, in the course of whichDirectors discussed observance of the SDDS, the tem-plate for the dissemination of reserves data, thedevelopment of the external debt data category, and

participation in the GDDS. In addition, the Boardreviewed the staffs proposal to integrate an assessmentmethodology, called the Data Quality AssessmentFramework, into the structure of the data module ofthe Reports on Observance of Standards and Codes(ROSCs), as a central element of a Data Quality Assess-ment Program. (See Box 3.2.)

Directors welcomed the opportunity to review theexperience under the IMF's data standards initiativesand to consider proposals for their further refinementand consolidation. They expressed their strong appreci-ation to the staff for its work in this area. Directorssupported the consultative approach applied instrengthening the design and implementation of theseinitiatives (see Box 3.3), and stressed that the voluntarynature of the initiatives as well as the cooperativeapproach to their implementation should remainimportant characteristics in moving forward. The sub-stantial progress achieved in recent years under theIMF's data initiatives had further raised the IMF'sstanding as a center for dissemination of economic andfinancial statistics.

Directors highlighted the importance of members'data dissemination efforts for improved transparencyand crisis prevention. They commended nationalauthorities on the substantial progress achieved so far,as evidenced by the strong increase, since last year'sreview, in the number of countries meeting the specifi-cations of the Special Data Dissemination Standard.They were also encouraged that participation in theGeneral Data Dissemination System was increasing at asatisfactory pace and in line with the target set at theThird Review of Data Standards Initiatives.

The increased interest in the SDDS among users wasevidenced by an increase in the usage of the Data Stan-dards Bulletin Board (DSBB) and the feedback fromthe IMF's outreach efforts. Directors supported thestaff's plans to strengthen further its outreach effortsthrough seminars on international standards and codes,as well as take advantage of the opportunities affordedby ROSC missions and surveys of the DSBB's users tosolicit views.

Progress was also being made in the area of externaldebt statistics. Directors noted the work being done tofinalize the Debt Guide as well as the positive responsefrom the IMF membership to a series of seminars toraise awareness of the data dissemination standards forexternal debt and ascertain the extent to which coun-tries were advancing toward meeting theserequirements. The implementation of the new externaldebt data category would be discussed during the nextreview of the IMF's data standards initiatives.

Directors welcomed the development of the DataQuality Assessment Framework, and most supported itsintegration into the data module of the ROSC. Direc-tors agreed to preserve the structure of the ROSC

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module, whereby the module would continue to pro-vide a summary assessment of a member's observancewith the data dissemination standards complementedwith a summary assessment of data quality.

Looking ahead, Directors broadly agreed that theIMF's data standards would need to be updated to takeinto account the latest developments in statisticalmethodology. They also supported implementing anopen exchange system for the distribution and exchangeof statistical information on the Internet, which wouldenhance the functionality and user friendliness of theDSBB.

Box 3.2IMF's Data StandardsThe IMF's Data Standards Initiativesaim to enhance the availability oftimely and comprehensive statistics andtherefore contribute to the pursuit ofsound macroeconomic policies and tothe improved functioning of financialmarkets.

The Special Data DisseminationStandard (SDDS) was established in1996 to guide countries that have ormight seek access to international capi-tal markets in the provision of data tothe public. As of April 30, 2002, therewere 50 subscribers to the SDDS—inNovember 2001, Costa Rica becamethe third new subscriber (the otherswere Brazil and Tunisia) since the endof the transition period in December1998. Subscription is voluntary.Among other things, subscribersundertake to follow SDDS require-ments on the coverage, periodicity, andtimeliness of the data; to issue calendarsidentifying when data are to bereleased; and to pursue good practiceswith respect to the integrity and qualityof the data. SDDS subscribers supplyinformation about their data dissemina-tion practices for posting on theInternet on the Dissemination Stan-dards Bulletin Board (DSBB) athttp://dsbb.imf.org. In addition, sub-scribers are required to maintain anInternet website, referred to as aNational Summary Data Page (NSDP),which contains the actual data and towhich the DSBB is electronicallylinked.

The General Data DisseminationSystem (GDDS) was established in1997 as a framework for countries toimprove their statistical systems to meetthe evolving requirements of the user

community. The G D D S fosters theapplication of sound methodologicalprinciples, the adoption of rigorouscompilation practices, and the obser-vance of procedures that ensureprofessionalism and objectivity. Coun-tries that participate in the G D D Sprovide metadata describing their datadissemination practices and detailedplans for improvement for posting onthe DSBB.

In July 2001 the Executive Boardapproved an important enhancement tothe IMF's data standards. The DataQuality Assessment Framework—andits integration into the data module ofthe Report on the Observance of Stan-dards and Codes1 (ROSC)—addressesthe concern that standards assessmentsshould examine not only the periodic-ity, timeliness, and coverage of datareleases but also the quality of the databeing released. The framework forassessing data quality was developed bythe I M F in consultation with nationalstatistical offices, international organi-zations, and data users outside theI M F . It brings together best practicesand internationally accepted conceptsand definitions in statistics and coverssuch dimensions of data quality asintegrity, methodological soundness,accuracy and reliability, serviceability,and accessibility, as well as the relatedinstitutional prerequisites.

Most Directors agreed that the next review of theIMF's data standards initiatives should take place in thesecond half of 2003.

Assessing Members' Observance of StandardsThe number of assessments summarized in ROSCmodules increased by over 100 percent duringFY2002. As of end-April, 228 ROSC modules for76 economies had been completed and 165 for59 economies had been published. Assessments arebeing carried out by the World Bank on countries'observance of standards in the areas of corporate

governance, and accounting andauditing. Participation in ROSCmodules—which is voluntary—hasbeen led by member countriesin Central and Eastern Europe.

Although members are responsi-ble for implementing standards, theIMF and other international bodiesare helping by providing technicalassistance. (For further details, seeChapter 7.)

1Reports on the Observance of Standardsand Codes, a joint endeavor of the IMF andWorld Bank carried out in consultation withthe relevant authorities of the respectivecountries, summarize the extent to whichcountries observe certain internationally rec-ognized standards.

Feedback from Users of Reports onObservance of Standards and CodesThe IMF—in cooperation with otherinstitutions, including the WorldBank and the Financial StabilityForum—has undertaken a series ofoutreach missions designed toinform and solicit feedback frommembers and markets of the workon standards. In the last financialyear, IMF staff has participated inseminars in France, Germany, Italy,Spain, Tunisia, and the UnitedStates, as well as at the World TradeOrganization in Geneva and theOECD/Development AssistanceCommittee in Paris.

This outreach has elicited feed-back that is helping to makeROSCs more accessible to users—for example, shorter in length,with a standardized format, andwith more comprehensive countrycoverage. National authorities havealso expressed concern thatadequate technical assistance bemade available to help themaddress weaknesses identified instandards assessments. Steps arebeing taken to respond to theseconcerns and the associated resourceimplications.

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Strengthening Financial SectorsAlong with the Asian crises, thebanking sector problems faced by alarge number of IMF members havehighlighted the critical importanceof concerted action to strengthenfinancial systems. During FY2002, aspart of its intensified financial sectorsurveillance activities launched inrecent years, the IMF continued tocarry out a number of financial"health checkups" under the JointIMF-World Bank Financial SectorAssessment Program (FSAP), exam-ined the use of summary financialsoundness indicators, and gavegreater focus to assessments of off-shore financial centers.

Financial Sector Assessment ProgramThe FSAP, participation in which isvoluntary, aims at strengthening themonitoring of countries' financialsystems in the context of the IMF'sbilateral surveillance and the WorldBank's financial sector developmentwork. Following the pilot, the IMFand the Bank Executive Boardsagreed that the FSAP should beundertaken in the future at a rate ofup to 24 country assessments a year. At the IMF,Financial System Stability Assessment (FSSA) reports,which are derived from the discussion of FSAP find-ings, were endorsed as the preferred instrument forstrengthened monitoring of financial systems as part ofIMF surveillance. By April 2002, 27 countries hadcompleted their FSAP participation.1 An additional 50countries had committed to participate in the program,and the work was already under way for 27 of thesecountries. In January 2001, publication of the FSSAswas authorized to allow sharing an integrated assess-ment of the strengths and vulnerabilities of thesefinancial sectors with markets; 11 countries had pub-lished their FSSAs by April 2002. The program ofassessments in financial year 2002 placed greateremphasis on systemically important countries in linewith the views of the two Boards.

As a complement to the work on assessing externalvulnerability and the Financial Sector Assessment Pro-gram, the IMF has developed a set of FinancialSoundness* Indicators (FSIs) and methods of macro-

Box 3.3Collaborating on StandardsI M F staff members have collaboratedwith a number of other groups torevise and develop standards. Staffmembers are working with• the Basel Committee on the New

Basel Capital Accord—a crucial com-plement to the Basel Core Principles,the internationally recognized stan-dard for banking supervision;

• relevant international agencies todevelop assessment methodologyand guidance on international stan-dards for securities regulation(International Organization forSecurities Commissions, IOSCO),insurance supervision (InternationalAssociation of Insurance Supervi-sors, IAIS), and systemicallyimportant payment systems (Com-mittee on Payment and SettlementSystems, CPSS);

• the Bank and the InternationalAccounting Standards Board ondeveloping more detailed standardsand standards assessment method-ologies for accounting andauditing;

other agencies to complete theirwork on the External Debt Guideand are assisting countries to com-pile data on external debt consistentwith the Special Data DisseminationStandard (SDDS) requirements andthe General Data DisseminationSystem (GDDS) recommendations.1In this regard, the IMF posted thesecond draft of the Debt Guide onits external website seeking anotherround of comments before finalizingit; andthe Financial Action Task Force(FATF) and the World Bank todevelop a methodology for enhanc-ing the assessment of legal,institutional, and financial supervi-sory standards relevant forcountering money laundering andterrorist financing (see text).

1The Inter-Agency Task Force on FinanceStatistics, formed under the aegis of theUnited Nations Statistical Commission andchaired by the IMF, is the coordinatingbody for this work.

1An FSAP is considered complete once the FSSA has been dis-cussed by the Executive Board and the FSAP report has been sent tothe authorities.

prudential analysis designed to improve the assessmentand monitoring of vulnerabilities in financial systems.(Macroprudential analysis includes stress testing offinancial systems' sensitivity to a variety of shocks.)In June 2001, the Board endorsed a core and an"encouraged" set of FSIs. The core set focuses onthe banking sector and was selected because of itsanalytical relevance, usefulness, and availability. Theencouraged set includes additional indicators of thebanking sector as well as indicators for the nonbankfinancial sector, the corporate and household sectors,and real estate markets. Directors agreed that a moregeneral compilation and greater use of soundness indi-cators, with a focus on the core set, would pave theway for a significant strengthening of surveillance.They supported more systematic compilation of dataon FSIs in the Financial Sector Assessment Programand in Article IV reports with in-depth financial sectorassessments.

In July 2001, during their Fourth Review of theIMF's Data Standards Initiatives, Directors discussedthe possible inclusion of FSIs in the SDDS. While anumber of Directors believed this would be a usefuldevelopment, others considered that such indicatorsshould not be included even at a later stage, so as notto discourage new subscriptions and not to overburden


C H A P T E R 3

existing subscribers. It was decided to return to theissue at a future date.

The work ahead on FSI-related issues includes activ-ities in four areas: support of compilation efforts bynational authorities; analytical and empirical work onmeasuring and analyzing FSIs; strengthened monitor-ing of FSIs, in cooperation with country authorities, asa key component of the FSAP/FSSA process; andencouraging national authorities to release the indica-tors to the public on a regular basis.

Offshore Financial Center AssessmentsThe IMF has extended its financial sector work toinclude offshore financial centers (OFCs). The programinvolves voluntary assessments of OFCs at three possi-ble levels of intensity.2 As of end-April 2002, IMFstaff have undertaken missions to 19 offshore financialcenters for the purpose of gathering information,providing technical assistance, and assisting self-assessments; staff completed 9 O F C assessments andthree (Cyprus, Gibraltar, and Panama) were publishedduring the period. The Coordinated Portfolio Invest-ment Survey (CPIS) organized by the IMF, whichincludes the participation of several important OFCs,will support this work by helping national statisticiansto compile more comprehensive data on cross-borderinvestment positions.

Capital Account LiberalizationThe IMF has strengthened its work on capital accountissues, including by undertaking more analysis, givingmore prominence to capital account issues in Article IVconsultations, and expanding discussions with the pri-vate sector. The benefits of capital account openinginclude a more efficient international allocation of sav-ings and improved productivity (for example, throughtechnology transfer in foreign direct investment flows),enlarged opportunities for portfolio diversification, risksharing, deeper financial markets, and a greater interna-tional division of labor. On the other hand, volatileinternational capital flows have played a role in a num-ber of recent crises, pointing to the importance ofappropriate sequencing of capital accountliberalization.

In July 2001, in response to a request from theInternational Monetary and Financial Committee ofthe IMF, the Board held a preliminary discussion onfinancial sector stability and sequencing of capitalaccount liberalization. Bearing in mind that there is no

simple rule applicable to all countries, Directors dis-cussed some general principles that could be helpful tocountries in sequencing and coordinating capitalaccount liberalization. These principles emphasize• the importance of macroeconomic stability and of

giving priority to financial sector reforms thatsupport such stability;

• coordinating different financial sector policies toensure mutually reinforcing reforms;

• taking into account the initial condition of financialand nonfinancial entities and the effectiveness ofexisting capital controls;

• implementing early, key measures that may have along lead time;

• considering the sustainability of the reform process;and

• ensuring the transparency of the liberalizationprocess.The principles point to the desirability, in most

cases, of liberalizing long-term flows (in particular for-eign direct investment) ahead of short-term flows withsuggestions of specific policy measures that should beput in place before different types of flows are liberal-ized. In many cases a gradual approach to liberalizationmay be required, but would not in itself guaranteeorderly liberalization.

A workshop to discuss advanced country experienceswith capital account liberalization took place inDecember 2001. Discussions will continue both withinthe IMF and with the private sector, including throughthe Capital Markets Consultative Group.3

Crisis ResolutionWhile the IMF's efforts at crisis prevention shouldreduce the number of crises over time, it would beunrealistic to expect that all member countries willalways be able to avoid crises. During FY2002, theExecutive Board held continuing and informal discus-sions on a range of issues related to the resolution offinancial crises and the role of the private sector.

In August 2001, the Board had a preliminary,informal discussion on a staff paper that reviewed thetreatment of the claims of private sector and Paris Clubcreditors. The Board had requested staff to prepare apaper on issues relating to comparability of treatment

2Module I is an assisted self-assessment with technical assistancefrom experts, as needed, to help offshore financial centers assess theircompliance with particular standards. Module 2 is a stand-aloneIMF-led assessment of standards, and Module 3 (or FSAP) is acomprehensive assessment of risks and vulnerabilities, institutionalpreconditions, and standards observance prepared by the IMF.

3Just before the September 2000 Annual Meetings in Prague, theIMF set up, at the behest of the Managing Director, a Capital Mar-kets Consultative Group ( C M C G ) to foster a regular dialoguebetween IMF management and senior staff and representatives of theprivate financial sector. The C M C G meets several times a year, at var-ious locations around the world, principally in the major financialcenters. Representatives come from a range of financial institutions,including banks, investment houses, and institutional investors. Al lregions of the world are represented. The meetings are private andinformal in nature.

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between Paris Club and private sector claims in theexceptional cases in which a rescheduling by Paris Cluband other official bilateral creditors is required. Directorsfelt that many of the questions raised by the paper wereof a technical nature, but that the staff paper neverthe-less provided a useful background to help advance thediscussions between the staff and the Paris Club, andbetween the Paris Club and the private sector, on waysto address comparability of treatment and private sectorinvolvement.

In September 2001, the Board assessed the determi-nants and prospects for the pace of capital market accessby countries emerging from crises, a critical element ofthe framework for private sector involvement. Directorshad a broad-ranging discussion but concluded thatmore theoretical and empirical work was needed beforethey could reach firm opinions on this complex subject.They also agreed with the staff that these assessmentscould not be made in a mechanical way, and that judg-ment and monitoring would continue to be required ineach specific case.

Directors considered that improved understandingof the reasons behind the loss of market access couldalso provide useful indications on how countries mightreaccess markets. Three determinants of market accessstood out: namely, changes in global financial condi-tions; market contagion; and domestic economicpolicies. Past experience suggested that countries thatlose market access as a result of adverse developmentsin global financial markets, or minor spillover fromcrises elsewhere, generally regain market access quicklyas the effects of such developments pass. Some Direc-tors stressed that domestic economic policies wereoften a major cause of loss of market access.

The Board considered the determinants of therestoration of market access identified in the staffpaper to be a useful starting point, but stressed thatthe sample was limited. While noting the importanceof favorable conditions in international capitalmarkets for restoring access, Directors agreed thatthe single most important determinant of a country'sprospects was adopting credible corrective policies—especially corrective macroeconomic and structuralpolicies that improved a country's external accountsand debt sustainability. Other determinants were alsoconsidered.

Finally, many Directors stressed the need to seekgreater input from market participants themselves and abetter understanding of the rationale underlying theirlending decisions as the IMF continued to refine itswork in this area.

Work Program for Crisis ResolutionThe Managing Director's April 2002 Report to theI M F C laid out a four-point work program tostrengthen the framework for crisis resolution:

• Increasing the IMF's capacity to assess the sustain-ability of a country's debt;

• Clarifying the IMF's access policy;• Strengthening the tools available for securing the

private sector's involvement in the resolution offinancial crises; and

• Examining a more orderly and transparent legalframework for sovereign debt restructurings, as wellas identifying with more clarity the considerationsthat should guide the availability of IMF financingduring and after a restructuring.Improving the analytical framework that the IMF

uses to judge debt sustainability is essential to theIMF's ability to respond appropriately to differentcrises. As outlined in the Prague framework, the IMFmust strive to distinguish between those cases where amajor debt restructuring, possibly involving a substan-tial write-down of claims, is called for; those caseswhere the official sector will need to encourage credi-tors to reach voluntary agreements to maintain theirexposure to help overcome coordination problems; andcases in which it is appropriate for the IMF, in conjunc-tion with others, to provide financing in support of themember's adjustment program to help restore confi-dence and catalyze the resumption of private capitalinflows. This distinction should be based solidly on anassessment of the member's debt sustainability.

In assessing the sustainability of a member's externaland fiscal position, the focus is on a member's ability tosustain financial and economic viability, and whethersome form of debt reprofiling or restructuring is neces-sary to achieve that objective in the context of awell-designed program of adjustment. Sustainabilityanalysis may not always yield unequivocal results, butthe IMF is working to strengthen the analytic basisused to make an inherently difficult judgment. It isenvisaged that staff would bring together in a more sys-tematic fashion the elements that go into such ajudgment, including the initial stock of actual and con-tingent liabilities, expected external and internaldevelopments that will affect the debt-servicing burden,the likelihood of more adverse scenarios occurring, andthe member's capacity—including its political and insti-tutional capacity—to adjust policies in response toshocks.

A second strand in the work program will be to clar-ify the policy on access to IMF resources for membersfacing capital account crises. In this context, it will beimportant to recognize that a policy on access limits insuch cases must be based on the reality that the IMF'sresources are inherently limited, while the potentialfinancing needs of a country integrated into globalmarkets can be very large indeed, and, in some cases,are not adequately reflected in members' quotas. Thepolicy would specify the circumstances under which theIMF would be prepared to support a member's policies

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in the event it was facing difficulties. The general direc-tion would be that larger levels of access requirestronger justification. A clearer policy on access limitsshould allow the IMF to provide the scale of financingneeded to support members addressing their problems,while at the same time reinforcing incentives forresponsible policies and prudent assessment of risk.

A third strand of the work program aims tostrengthen the tools available for securing the private sec-tor's involvement in the resolution of financial criseswithin the context of the existing legal framework. Oneaspect of the work explores the use, in cases in which amember's debt burden is judged to be sustainable, offinancing options to help resolve financial crises and tocomplement the catalytic approach. The broad conclu-sion is that although the use of alternative financingtools under certain circumstances may help to managecrises, they need to be carefully assessed on a case-by-case basis. In each case, the benefits of these financingtechniques need to be weighed against potential dan-gers of unsettling markets that they may affect, as wellas their impact on transferring risk from sovereigns tothe domestic financial system.

To contain the harmful impact of sovereign debtrestructuring, efforts will be needed to limit the erosionof confidence and keep the restructuring processorderly, including through the prompt announcementof corrective policy measures and the formulation of afair restructuring offer.

Sovereign Debt RestructuringIn the infrequent cases when countries run up unsus-tainable debt burdens, they need to seek a restructuringof their obligations. A shortcoming in the internationalfinancial system is the absence of a framework for thepredictable and orderly restructuring of sovereign debts.There is no comprehensive mechanism for majoritydecision making by private creditors—a problem that iscompounded when the debt includes numerous differ-ent debt instruments issued in different jurisdictions.The upshot of this collective action problem is that debtrestructuring is often delayed, prolonged, and disor-derly, depleting asset values of creditors and imposingsevere hardship on the debtor country. This is not onlydamaging to the debtor and its creditors, it is also dis-ruptive to international capital markets and to thetrading partners of the debtor country.

In a February 2002 Executive Board seminar to dis-cuss staff papers that examined complementary tools forthe catalytic approach and further considerations in therestructuring of international sovereign bonds, Directorsmade progress on their discussion of issues relating tothe involvement of the private sector in the resolutionof financial crises. Directors noted that even though therecent experience with the catalytic approach had beenuneven, it was useful to give early consideration to the

use of such complementary tools as rollover agreementswith domestic investors aimed at helping meet financ-ing needs while policies took hold and confidence wasrebuilt. Directors stressed, however, that such policiescould not substitute for sound economic policies, effi-cient public debt management, strengthenedtransparency, and active debtor-creditor relations. Theuse of alternative financing tools to help to managecrises would have to be examined on a case-by-casebasis, carefully weighing the benefits and potential costsof these techniques in the specific context of eachcountry.

Directors noted that, notwithstanding the principlethat contractual obligations should be honored, inthose exceptional circumstances in which financingrequirements were large and prospects for an earlyreturn to spontaneous capital market access were poor,a broad spectrum of actions might be warranted. Bond-holders along with other creditors may need tocontribute to the resolution of the crisis. In cases inwhich a member's debt situation is not sustainable,these actions might need to include a restructuring thatbrought about debt and debt-service reduction so as toprovide an adequately financed program.

On March 6 and March 8, 2002, the ExecutiveBoard held an informal seminar to discuss approachesto improving the legal framework for sovereign debtrestructuring. They discussed two staff papers. Thefirst—issued in November 2001—followed closely thespeech by First Deputy Managing Director AnneKrueger (see Box 3.4) setting out a possible new statu-tory regime governing debt restructuring. The secondstaff paper—issued in February 2002—elaborated fur-ther on such statutory approaches and developed anapproach in which the IMF played a less central role indecision making. The second paper also assessed theextent to which the use of collective action clauses indebt instruments could achieve the desired improve-ments in the sovereign debt restructuring process.There are pros and cons to all the options being con-sidered, and it was recognized that substantial furtherconsideration would be necessary before coming toconcrete proposals.

The seminar highlighted a common belief amongmany Directors, a belief shared by management, thatthe existing process for restructuring sovereign debtwas more prolonged, more damaging to the countryand its creditors, and more unpredictable than wasdesirable. Both countries and their creditors would gainif stronger incentives were created for countries withunsustainable debts to address their problems rapidly,and if there were a more predictable process, in suchexceptional cases, for reaching rapid agreement on arestructuring that paved the way toward the restorationof sustainability. This needed to be done without intro-ducing incentives that might result in unnecessary



defaults or broadly increasing theperceived risk of default.

The twin challenges were todevelop an improved framework thatcould facilitate the sovereign debtrestructuring process and to improvethe IMF's analytical basis for makingjudgments about debt sustainability.These efforts should be integratedinto broader efforts to improve theeffectiveness of crisis prevention andresolution. Recourse to a compre-hensive debt restructuring wouldremain appropriate in only very lim-ited and exceptional circumstances,consistent with the private sectorinvolvement framework.

The staff paper for the discussionoutlined broad statutory and con-tractual approaches for achievingthese objectives: a statutoryapproach with enhanced IMFauthority, a statutory approachbased on majority action across theaggregated debts of the sovereign,and a contractual approach based oncollective action clauses. The secondstatutory option envisages a restruc-turing mechanism with limited IMFinvolvement in the operations of themechanism itself and where deci-sions on whether to give legalprotection for the sovereign andprovide seniority for new privatefinancing would be left to thedebtor and a qualified majority of itscreditors. Although an amendmentof the IMF's Articles of Agreementcould provide the statutory basis forthis power, the IMF would not beempowered to make decisions thatlimited the enforcement of creditorrights. Rather, it would give thequalified majority of creditors theability to accord the debtor tempo-rary protection against legal action, strengthen thehand of the debtor and a qualified majority of itscreditors against a dissident group of creditors, andperhaps most crucially, allow the entire creditor bodyto vote as a whole rather than instrument by instru-ment (which is the case with existing collective actionclauses). At the same time, safeguards would beestablished to protect the seniority of certain claims,and procedures would need to be put in place toverify claims and ensure the integrity of the votingprocess.

Box 3.4F D M D Krueger Proposes a Sovereign Debt Restructuring MechanismProposals for a new sovereign debtrestructuring mechanism were spelledout by IMF First Deputy ManagingDirector Anne O. Krueger initially in aspeech to the National Economists'Club in November 2001 and then in amore developed version at the Institutefor International Economics in April2002. The proposal was also describedby Ms. Krueger in a pamphlet entitled" A New Approach to Sovereign DebtRestructuring," published in April2002.

The First Deputy Managing Directortook as her premise the growing inter-national realization that the absence ofa strong legal framework for sovereigndebt restructuring generates consider-able costs. First, sovereigns wait toolong before seeking a restructuring,leaving both their citizens and creditorsworse off. Second, when they finally doopt for restructuring, the process takeslonger than needed and is less pre-dictable than debtors and creditorswould like. Ms. Krueger observed thatthe current international financial sys-tem lacks an established framework foran equitable debt restructuring thatreturns the country to sustainability.

In advancing her proposal, Ms.Krueger outlined the objective of aSovereign Debt Restructuring Mecha-nism (SDRM) as being "to facilitatethe orderly, predictable, and rapidrestructuring of unsustainable sovereigndebt." Use of the mechanism would befor the debtor country to decide andnot for the IMF or a country's creditorsto impose. The mechanism would onlybe invoked in very limited circum-stances—specifically, when a country'sdebt had become unsustainable.

Two key challenges, she said, were,first, to create incentives for debtors toaddress their problems promptly and,second, to create incentives for allparties to reach rapid agreement onrestructuring terms. The policies ofthe I M F regarding the availability ofits resources before, during, and afterthe restructuring process would playa critical role in shaping theseincentives.

Under the terms of the approachoutlined by Ms. Krueger, an interna-tional legal framework would becreated that would allow a qualifiedmajority of a sovereign's creditors toapprove a restructuring agreement,which would then be binding on a dis-senting minority. This provision wouldbe supported by three other features: atemporary stay on creditor litigationafter a suspension of payments butbefore a restructuring agreement isreached; safeguards to protect creditorinterests during the stay; and a mecha-nism to induce new financing by givingit seniority over preexisting privateindebtedness during the period of thestay.

As envisaged by Ms. Krueger, aninternational judicial panel would be setup to arbitrate disputes and overseevoting. An amendment to the IMF'sArticles of Agreement would providethe legal basis to make an agreementbinding on all creditors. Significantlegal authority would not, however, betransferred to the IMF itself; the IMFwould not be in the position of impos-ing an agreement and the essentialdecision-making authority would restwith the debtor and a majority of itscreditors.

Inevitably, it would take time to sort through thecomplex issues associated with the design of a restruc-turing mechanism, and then, if so agreed and if therewas broad-based support for the steps that it wouldrequire, to put a statutory approach in place. Contrac-tual improvements could help before then, and, as wasemphasized by several Directors, such improvementsshould be pursued vigorously on their own merits. TheIMF will continue to explore ways in which contractualapproaches to debt restructuring can be made moreeffective. Future work in this area would include steps


C H A P T E R 3

that could be taken to create stronger incentives for theuse of appropriate majority restructuring and majorityenforcement provisions in international debt contracts.It would also include an assessment of the feasibilityand market acceptability of collective action clausesthat aggregate claims across instruments for votingpurposes.

Finally, the Board agreed that efforts to improvethe existing framework for debt restructuring shouldnot displace other aspects of the work program on theresolution of financial crises. Improving the assessmentof debt sustainability was crucial. The Board's discus-sion also confirmed that an early review of access limitswould be a key element in IMF efforts to improvethe effectiveness of the private sector involvementframework.

In its April 2002 Communique, the I M F C endorsedthe IMF's work program to strengthen the existingPrague framework for crisis resolution, and in particularto provide members and markets with greater clarityand predictability about the decisions the IMF will takein a crisis.

The Committee also welcomed the consideration ofinnovative proposals to improve the restructuring ofsovereign debt to help close a gap in the currentframework. It encouraged the IMF to continue toexamine the legal, institutional, and procedural aspectsof two approaches, which could be complementaryand self-reinforcing: a statutory approach, whichwould enable a sovereign debtor and a supermajorityof its creditors to reach an agreement binding all credi-tors; and an approach, based on contract, which wouldincorporate comprehensive restructuring clauses indebt instruments. The Committee looked forward toreviewing progress in this area at its next meeting infall 2002.

Combating Money Launderingand the Financing of TerrorismMoney laundering and the financing of terrorism areissues that concern countries at every stage of develop-ment, and involve both onshore and offshore financialcenters. These are global problems that not only affectsecurity, but also potentially harm economic prosperityand the international financial system.

BackgroundAt the end of the last financial year, the ExecutiveBoards of the IMF and the Bank considered how thetwo institutions might enhance their contributions toglobal efforts to fight money laundering. Directorsrecognized that more vigorous national and interna-tional efforts to counter money laundering wereneeded. Directors emphasized that the IMF's involve-ment in this area should be confined to its core areasof competence, and confirmed that it would not be

appropriate for the IMF to become involved in lawenforcement activities. The Board generally agreedthat the IMF should take a number of steps toenhance the international efforts to counter moneylaundering, including:• developing a methodology that would enhance the

assessment of financial standards relevant for coun-tering money laundering that could be used inreports under the Financial Sector AssessmentProgram;

• working more closely with major international anti-money-laundering groups;

• increasing the provision of technical assistance in thisarea;

• including anti-money-laundering concerns in its sur-veillance and other operational activities whenmacroeconomically relevant; and

• undertaking additional studies and publicizing theimportance of countries acting to protect themselvesagainst money laundering.

A set of similar steps was agreed to by the Bank.Directors also generally agreed that the 40 Recom-

mendations on anti-money laundering (AML) made bythe Financial Action Task Force on Money Laundering(FATF) should be recognized as the appropriate stan-dard for combating money laundering.4 Directorsagreed that work should go forward to determine howthe recommendations could be adapted and madeoperational to the IMF's work, with a view towardeventually preparing related ROSCs. They noted thatthe FATF process needed to be made consistent withthe ROSC process and once this was done, the FATFcould be invited to participate in the preparation of aROSC module on money laundering. The Board askedstaff to contribute to the ongoing revisions to theFATF 40, discuss with the FATF principles underlyingthe ROSC procedures, and come back to the Boardwith a report and proposals.

Post-September 11 Board DiscussionAt a November 12, 2001, Board discussion, ExecutiveDirectors welcomed the opportunity to review progressin the IMF's work on anti-money-laundering issues andto consider the IMF's role in combating terrorismfinancing in the aftermath of the attacks of September11. They stressed that the IMF had a key role to play incombating money laundering and terrorism financingas part of international efforts to prevent the abuse of

4The FATF's 40 Recommendations are widely recognized as thekey set of A M L standards. These recommendations cover lawenforcement, financial system regulation, and international coopera-tion. In October 2001, the FATF issued new international standardsto combat terrorist financing, in the form of eight Special Recom-mendations. The "FATF 40+8" is the shorthand reference used bythe FATF to cover all the Recommendations.

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financial systems and to protect and enhance theintegrity of the international financial system.

Directors acknowledged the progress achieved inimplementing the measures contained in the Board'ssumming up of April 13, 2001, to enhance the role ofthe IMF in the area of anti-money laundering. In par-ticular, Directors noted that:• an A M L Methodology Document had been pre-

pared, circulated for comment, and was being piloted;• work was under way with FATF to adapt the FATF

40 Recommendations to the IMF's Report onObservations of Standards and Codes process and toreview and update the Recommendations; and

• technical assistance for anti-money laundering hadbeen intensified and in some cases extended toinclude, for example, the creation of financial intelli-gence units.

In considering how the IMF could extend its activi-ties to limit the use of financial systems for terrorismfinancing, and to make its anti-money-laundering workmore effective, Directors stressed that the IMF'sinvolvement in these areas should be consistent with itsmandate and core areas of expertise. Recognizing thatno single agency can resolve the problems indepen-dently, they emphasized that the IMF should adopt adisciplined and collaborative approach that respectedthe expertise, scope, and mandate of other institutions,and that the roles of the various institutions involvedshould be clarified. Directors reaffirmed that the IMF'sprimary efforts should be in assessing compliance withfinancial supervisory principles and providing corre-sponding technical assistance. They confirmed, inparticular, that it would be inappropriate for the IMFto become involved in law enforcement issues.

Directors generally agreed on a set of measures(later known as the IMF's action plan) in response tothe challenges facing the institution. In particular,Directors supported:• Expanding the IMF's involvement beyond

anti-money laundering to efforts aimed at counter-ing terrorism financing.

• Expanding the joint I M F / W o r l d Bank A M LMethodology Document and IMF technical assis-tance to include aspects relating to and-terrorismfinancing. In addition, Directors noted thateffective implementation of financial supervisoryprinciples depends on a sound legal framework andon other institutional structures. Thus, mostDirectors considered it appropriate to expandcoverage to legal and institutional issues in theanti-money-laundering methodology. SomeDirectors considered that the methodologydocument should eventually cover all the FATFrecommendations, both the original 40 (as revised)and the additional 8 on anti-terrorist financing.

Several other Directors, however, supported anevolutionary approach whereby the staff wouldwork on expanding coverage of the assessmentmethodology to these issues while experience in theimplementation of the current Methodology Docu-ment accumulated.

• Applying the expanded methodology in OffshoreFinancial Center (OFC) assessments (the pace ofwhich would be speeded up), as well as onshoreassessments in the context of Financial Sector Assessment Programs, though they stressed that theseassessments should be done on a voluntary basis.

• Circulating to all IMF members over time in thecontext of Article IV consultations a voluntaryquestionnaire (based on the expanded A M Lmethodology). This exercise should be seen as acomplement to and not as a substitute for FSAPsand O F C assessments, and should inform the ArticleIV discussions and help set priorities for technicalassistance. The results of the exercise could, with theagreement of the member, be made available to theBoard.

• Enhancing the IMF's collaboration with the Finan-cial Action Task Force, including by working closelyand rapidly with the task force on a suitable assess-ment process compatible with the uniform,voluntary, and cooperative nature of the ROSCexercise and by contributing to the revision of theFATF 40 Recommendations.

• Increasing relevant IMF technical assistance—butavoiding diversion of assistance resources from theirtraditional uses—to correct deficiencies in countries'anti-money-laundering and anti-terrorism-financingregimes identified in the course of FSAPs and O F Cassessments; and to develop an IMF role in the coor-dination of such technical assistance.

• Undertaking further research and analysis on rele-vant issues, including alternative remittance andpayment systems, and corporate vehicles.

Directors further agreed that a key element incombating money laundering and terrorist financingwas more effective information sharing and coopera-tion among national authorities and internationalagencies. They called upon governments to createmechanisms to enable collection and sharing, includ-ing cross-border sharing of financial information withappropriate supervisory and law enforcement authori-ties. Directors stressed that primary responsibility forenforcement of anti-money-laundering and anti-terrorism-financing measures would continue to restwith national authorities.

Directors noted the preliminary estimates of addi-tional resources needed to undertake these tasks.They generally agreed that these estimates could beused as a basis for moving forward. Refining these

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Box 3.5Progress on Anti-Money Laundering and Combating the Financing of Terrorism During FY2002In a joint progress report to the I M F Cin April 2002 on the implementation oftheir intensified work on Anti-MoneyLaundering and Combating the Financ-ing of Terrorism ( A M L / C F T ) , the IMFand the World Bank reviewed progressin developing assessment methodolo-gies, in intensifying the assessment ofmembers' A M L / C F T regimes and off-shore financial centers, in research oninformal funds transfer systems, inanalysis of A M L / C F T legal and institu-tional frameworks, and in buildingcapacity among members (for the last,see Chapter 7 on technical assistance).

Development of AML/CFTMethodologies

Convergence on a single comprehensiveAML/CFT methodology. The November17, 2001, I M F C Communique calledfor enhancing "collaboration with theFATF on developing a global standardcovering the FATF recommendations,and working to apply the standard on auniform, cooperative, and voluntarybasis." In response to this call, and toearlier guidance, IMF and Bank staffshave intensified their consultations withthe FATF. A single comprehensive

methodology for assessing the FATF40+8 Recommendations has not yetbeen agreed, although there is substan-tial convergence at the staff level.

Expanded Methodology Document,A preliminary redraft of the expandedmethodology was sent for informationto the Boards of the IMF and the Bankin February 2002. It extended an earlierdraft: (1) combating the financing-of-terrorism elements were integrated intothe assessments along with anti-money-laundering elements; (2) a separate newsection was developed to address theadequacy of the legal and institutionalA M L / C F T framework; and (3) a sectioncovering nonprudentially regulated finan-cial service providers was introduced.

Simultaneously with circulating thisexpanded methodology to the I M F andBank Boards, the draft was sent for com-ments to the standard setters (BaselCommittee, IOSCO, IAIS, FATF, andthe Egmont Group). As a result of con-sultations with standard setters, a revisedversion of the expanded methodology,including additional material from theFATF, was circulated to the Boards ofthe I M F and Bank before the Spring2002 Meetings of the I M F C .

Intensification of AML/CFTAssessments

In FSAPs and OFC Assessments.A M L / C F T issues are now beingaddressed in all FSAPs and O F C assess-ments. FSAP and O F C missions haveprovided the framework for raisingissues and making concrete recommen-dations to national authorities for actionto strengthen their A M L / C F T regimes.Among the concerns identified in theseassessments have been weak legal andregulatory frameworks for A M L / C F T ;ineffective implementation of A M L /C F T regimes including poor industryawareness; narrow coverage of institu-tions; limited definition of violationsunder A M L / C F T laws and regulations;and inadequate reporting and evaluationof suspicious activities.

Several countries have already takenactions to strengthen their A M L / C F Tregimes in response to IMF and Bankrecommendations and the assessmentsconducted in FSAPs and the O F Cassessment program. For example, alarge offshore financial center conducteda comprehensive review of its A M L /CFT policies and implemented a strongaction plan to address weaknesses identi-

estimates and including the resource impact of theextra work, together with any possible offsets, wouldbe examined in the budget discussions for the financialyear 2003.

Directors believed that this package of furtheractions by the IMF, taken together, constituted a sub-stantive and measured response to the global challengesby enabling the IMF to make a more useful contribu-tion to combating money laundering and terroristfinancing. They requested the staff to keep the Boardinformed on progress in this area, including on effortsto converge toward a single and comprehensive assess-ment methodology that was operational for the IMF'swork, and to prepare a progress report for the Board bythe Spring 2002 Meeting of the International Mone-tary and Financial Committee (see Box 3.5) as well as apaper on the outcome of the enhanced work programbefore the 2002 Annual Meetings.

IMFC April 2002 CommuniqueAt its April 2002 meeting, the I M F C underscored thatinternational efforts to counter abuse of the interna-tional financial system to finance terrorism and launder

the proceeds of illegal activities remained a priority. Itwas encouraged by the response by many countries toits call in November 2001 for all countries to ratifyand implement fully the U N instruments to counterterrorism financing, to freeze terrorist assets, and toestablish financial intelligence units and ensure thesharing of information. The Committee urged coun-tries that had not as yet done so to fully implementand comply with these instruments. It also welcomedthe substantial progress made by the IMF, in closecollaboration with the World Bank, in implementingall elements of its action plan to intensify the work onanti-money laundering and combating the financingof terrorism. The Committee noted in particular thegood start made in assessing gaps in nationalA M L / C F T regimes, and fully supported the provisionof technical assistance to help countries identify andaddress such gaps.

While reiterating the responsibility of nationalauthorities for combating money laundering and thefinancing of terrorism, the Committee stressed thatsuccess will critically depend on continued vigilanceand timely action at the global level. It called on the

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fied by the assessment; a major develop-ing country enacted new A M L / C F Tlegislation; another major developingcountry established a Financial Intelli-gence Unit and is joining the EgmontGroup; and another is upgrading itssupervisory capacity on A M L / C F T .Further actions are being taken by anumber of countries with technical assis-tance from the IMF and the Bank (seeChapter 7).

The O F C assessment program hasbeen accelerated: I M F staff has agreedwith jurisdictions to schedule doublethe number of Module 2 or Module 3O F C assessments initiated in 2002 to20 from the 10 assessments begun in2001.

AML/CFT in the Context of ArticleTV Surveillance. Consistent with the callin the IMF Action Plan for expandedattention to A M L / C F T issues in ArticleIV consultations, a specific question-naire—covering legal, regulatory,supervisory, and institutional aspects ofA M L / C F T — h a s been distributed to aninitial group of 38 members. Responsesare voluntary. The initial group of 38countries was selected so as to achieverepresentative geographical coverage, to

complement assessments under FSAPsand the O F C assessment program, andto feed into the schedule of Article IVconsultations.

Progress on Other Researchand Analysis

Informal Funds Transfer Systems. TheIMF and the Bank are conducting astudy of these systems among variousdeveloped, transitional, and developingcountries. The goal of the research is tostudy the technical details and function-ing mechanisms of the systems withparticular regard to their macroeco-nomic, financial, and regulatoryimplications, including their potentialuse for money laundering and thefinancing of terrorism.

The first informal funds transfer net-work examined was the Hawala system.The IMF-Bank fact-finding mission vis-ited six countries (Germany, Pakistan,the Philippines, Saudi Arabia, theUnited Arab Emirates, and the UnitedKingdom). The mission examined thefactors underlying the development ofthe Hawala system and the extent of itsuse as well as its economic and regula-tory impact. It found that the system is

largely driven by legitimate remittanceactivity of expatriate communities.

However, its characteristics—mainlyanonymity and lack of traceability—-have made it vulnerable to criminalactivities. Regulation varies considerablyfrom country to country. Although thesystem is prohibited in some countries(Saudi Arabia), it is permitted by othergovernment authorities even thoughnot necessarily supervised. Some coun-tries (the United Kingdom) requireregistration. Others (Germany) licensesystem dealers. Further research will beconducted, including on the best way tomonitor these systems and constraintheir use by criminals. A final report willbe prepared in time for the Fall 2002Annual Meetings.

AML/CTT Legal and InstitutionalFramework. The IMF's Legal Depart-ment has conducted a survey of theA M L / C F T legal and institutionalframeworks of a broad cross-section ofcountries using the criteria defined inthe draft expanded methodology. Thesurvey relies on publicly available docu-ments and will form the basis for ananalytical report, to be completedbefore the Fall 2002 Annual Meetings.

IMF to make further progress on all elements of itswork program, consistent with its mandate andexpertise. In particular, efforts should now focus oncompleting the comprehensive A M L / C F T metho-dology, based on a global standard covering theFinancial Action Task Force recommendations, andthe development of assessment procedures compatiblewith the uniform, voluntary, and cooperative natureof the ROSC process. Enhancing the delivery of

technical assistance on A M L / C F T would also becrucial. The Committee urged the IMF, in cooperat-ing with other international organizations and donorcountries, to identify and respond to needs fortechnical assistance. It looked forward to receiving afull report on progress in this area at its next meetingin September 2002. The Committee called on mem-bers to share information on their own actions in thisfield.


IMF Lending Policies and Conditionality

The IMF provides financial support to member

countries under a variety of policies and lending instru-ments ("facilities"; see Table 4.1). Most forms of IMFfinancing are made conditional on the recipient coun-try's adopting policy reforms to correct the underlyingproblems that gave rise to the request for support.During FY2002, the Executive Board continued thereview of conditionality it had begun the previous year,working to focus and streamline the conditionsattached to IMF financing and to enhance countryownership of reforms.

Besides periodic reexamination of its policies onconditionality, the Board regularly reviews its policy onaccess to its financial resources. The amount of financ-ing to which a country has access is linked both to itsquota in the IMF (a reflection of the country's eco-nomic size, openness to the global economy, and otherfactors) and to the terms of the particular lending win-dow. In FY2002, the Board reviewed the access policylimits under the credit tranches and the Extended FundFacility.

(For more details of developments in IMF financialoperations and policies during the financial year, seeChapter 6.)

Review of ConditionalityThe policy conditions under which the IMF extendsfinancing to its member countries are designed toensure that the country has adopted the reformsneeded to address its external balance of paymentsproblems. This practice, known as "conditionality,"assures a country that it will continue to receive financ-ing as long as it carries out a reform program's policiesor achieves the intended outcome. Conditionality alsoprotects the revolving character of the IMF's resourcesby extending financing only when the country con-cerned is committed to policies that will enable it toimprove its external position and, hence, repay theIMF.

Conditionality has evolved considerably during thehistory of the IMF, reflecting the changing circum-stances and challenges faced by its members. Over

time, IMF-supported programs have increasinglyemphasized the importance of economic growth as apolicy goal. Programs have also stressed the need totackle structural economic problems where these ham-per a country's efforts to achieve a sustainable balanceof payments position. More recently, the IMF has sup-ported programs to deal with capital account crises,with an added emphasis on restoring market confi-dence; these cases have often called for large access andcomprehensive policy packages. Because of this evolu-tion, the IMF has regularly reviewed developments inconditionality.

The latest review began in the fall of 2000 (seeAnnual Report 2001, page 41) and was still in progressat the end of April 2002. A central concern is that ifpolicy conditions are excessively broad and detailedthey can undermine a country's "ownership" of itspolicy program—a key success factor. Thus, the reviewaims to ensure that conditionality in IMF-supportedprograms is designed and applied in a way that rein-forces national ownership and a country's sustainedimplementation of its economic reform program. Tothis end, the review emphasizes that conditionalityshould focus on those policies that are critical to themacroeconomic goals and set a clearer division of laborbetween the IMF and other international institutions,especially the World Bank.

During FY2002, the Board made good progress onthe review and met to discuss it on four separate occa-sions—in July and November 2001 and in January andApril 2002. In addition, a comprehensive report wasdelivered to the International Monetary and FinancialCommittee (IMFC) in April 2002 summarizing theprogress made to date in streamlining and focusingconditionality and enhancing the ownership of IMF-supported programs.

Streamlining Structural Conditionality—Initial ExperienceIn July 2001, the Board reviewed the initial experiencewith streamlining structural conditionality and consid-ered issues related to coordinating program

40 A N N U A L R E P O R T 2 0 0 2

CHAPTER 4


I M F L E N D I N G P O L I C I E S A N D C O N D I T I O N A L I T Y

conditionality with the World Bank. The Board alsotook the opportunity to consider comments on condi-tionality from outside the IMF, which had beensolicited through the IMF's website (see Box 4.1) andunder a program of seminars held in several majorcities.

Board members reviewed the experience in applyingan "Interim Guidance Note on Conditionality" thatwas issued to the staff by the Managing Director inSeptember 2000. (For the text of the guidance note,see Annual Report 2001, pp. 42-43.) While notingthat the shortness of the period and the limited num-ber of cases precluded drawing firm conclusions, theDirectors considered the review useful in highlightingthe factors that would shape further progress instreamlining.

The purpose of streamlining and focusing condi-tionality, Directors affirmed, was to enhance thesuccess and effectiveness of programs by concentratingon those conditions that were critical to achieving aprogram's macroeconomic objectives, while takingadequate account of national decision-makingprocesses and the administrative capacity to carry outreforms.

Directors agreed that the discussion and feedbackfrom the real-time assessments of new IMF-supportedprograms brought to the Executive Board would con-tinue to be a key instrument for refining the balance inthe scope and detail of IMF conditionality, and theyagreed to discuss the role played by the World Bank ineach case. They welcomed the focus on the case-by-case coverage of conditionality, and looked forward toits continuation, including the more detailed explana-tions for including or excluding particular reformmeasures.

Directors observed that the experience underarrangements supported by the Poverty Reduction andGrowth Facility (PRGF) and those supported by otherfinancial policies and facilities had differed, which tosome extent reflected the corresponding differentarrangements for coordination with the World Bank.For PRGF-supported programs, a division of labor hadbeen established that had permitted a noticeable reduc-tion in the number of conditions in PRGF-supportedprograms, and a concentration on measures critical tothe success of a program and within the IMF's coreareas. Under Stand-By Arrangements, where the frame-work was less formal, the experience was more mixed.However, the small number of cases made it difficult todraw conclusions from the observed differences.

The Board also reviewed IMF and World Bankcollaboration on country programs and conditionality.Directors agreed that, to clarify the delineation ofresponsibilities, it would be useful to identify one insti-tution as the "lead agency" for each policy area. Thatagency would be responsible for designing and moni-

Box 4.1IMF Requests Public CommentIn September 2001, the IMF issued a News Brief invitingpublic comment on a number of papers related to streamlin-ing and focusing IMF conditionality. The papers were postedon the IMF's website and interested parties were invited tosend in comments. All comments received by October 15were conveyed to the IMF Executive Board as backgroundinformation for its discussion in November 2001 and weretaken into account in further work by IMF staff. They werealso made public on the IMF website.

toring conditionality. They noted the importance ofstrengthened and more systematic coordinationbetween the IMF and the World Bank to secure thebenefit of the complementary expertise of the twoinstitutions.

Directors stressed that the policy advice, programdesign, and conditionality supported by the Bank andIMF needed to be consistent, and most Directorsagreed that, wherever possible, these should be inte-grated within a coherent country-led framework. Theyalso agreed that the application of the proposedapproach would need to take account of the circum-stances of individual countries.

Directors welcomed the extensive comments andsuggestions on conditionality received from outside theIMF, including the comments on the papers posted onthe IMF's website and those from seminars held inBerlin, Tokyo, and London. Points stressed in thosecomments included the benefits of national ownershipof reform programs, the need to pay attention to thesequence and pace of policy implementation, and theimportance of a clear and coherent strategy for assis-tance from the international community, including theIMF and multilateral development banks.

Strengthening Country Ownership of ProgramsIn November 2001, the Board informally reviewed thestatus of the ongoing efforts related to strengtheningcountry ownership of IMF-supported programs. Direc-tors agreed that, while ownership remained a difficultconcept to define for operational purposes, ideally itshould reflect a shared vision and an active support ofprogram objectives by the country authorities and theIMF. Directors considered that ownership was presentwhen a country's authorities willingly assumed respon-sibility for their policies, based on an understandingthat the policy program was achievable and was in thecountry's own interest. At the same time, broaderrather than narrower ownership—involving not onlythe executive branch of a country's government, butalso its parliament and other major stakeholders—wasdesirable.

A N N U A L R E P O R T 2 0 0 2 41


Credit Facility

Credit Tranches and ExStand-By Arrangements(1952)

Extended Fund Facility(1974) (ExtendedArrangements)

Special FacilitiesSupplemental ReserveFacility (1997)

Contingent Credit Line(1999)

Compensatory FinancingFacility (1963)

Emergency Assistance

(1) Natural disasters(1962)(2) Post-conflict (1995)

Facility for Low-IncomePoverty Reduction andGrowth Facility (1999)Note: Replaced theEnhanced StructuralAdjustment Facility

Purpose

tended Fund Facility4

Medium-term assistance for countrieswith balance of payments difficulties ofa short-term character

Longer-term assistance to supportmembers' structural reforms to addressbalance of payments difficulties of along-term character

Short-term assistance for balance ofpayments difficulties related to crises ofmarket confidence

Precautionary line of defense that wouldbe made readily available againstbalance of payments difficulties arisingfrom contagion

Medium-term assistance for temporaryexport shortfalls or cereal import excesses

Quick, medium-term assistance forbalance of payments difficulties related to:

(1) natural disasters

(2) the aftermath of civil unrest, politicalturmoil, or international armed conflict

MembersLonger-term assistance for deep-seatedbalance of payments difficulties ofstructural nature; aims at sustainedpoverty-reducing growthparticipatory process, and integratingmacroeconomic, structural, and povertyreduction policies

Conditions

Adopt policies that provide confidencethat the member's balance ofpayments difficulties will be resolvedwithin a reasonable periodAdopt 3-year program, with structuralagenda, with annual detailed statementof policies for the next 12 months

Available only in context of Stand-By orExtended Arrangements with associatedprogram and with strengthened policiesto address loss of market confidenceEligibility Criteria: (1) absence of balanceof payments need from the outset,(2) positive assessment of policies by theIMF, (3) constructive relations withprivate creditors and satisfactory progressin limiting external vulnerability,(4) satisfactory economic programAvailable only when the shortfall/excessis largely beyond the control of theauthorities and a member has anarrangement with upper credit trancheconditionality, or when its balance ofpayments position excluding theshortfall/excess is satisfactory

(1) Reasonable efforts to overcomebalance of payments difficulties(2) Focus on institutional andadministrative capacity building to pavethe way toward an upper credit tranchearrangement or PRGF

Adopt 3-year PRGF program. PRGF-supported programs are based on aPoverty Reduction Strategy Paper(PRSP) prepared by the country in a

Phasing and Monitoring1

Quarterly purchases (disbursements)contingent on observance of performancecriteria and other conditions

Quarterly or semiannual purchases(disbursements) contingent on observanceof performance criteria and otherconditions

Facility available for one year; frontloadedaccess with two or more purchases(disbursements)

Resources approved for up to one year. Smallamount (5-25 percent of quota) availableon approval but not expected to be drawn.Presumption that one-third of resources arereleased on activation, with the phasing ofthe remainder determined by a postactivationreviewTypically disbursed over a minimum of sixmonths in accordance with the phasingprovisions of the arrangement

None, although post-conflict assistance canbe segmented into two or more purchases

Semiannual (or occasionally quarterly)disbursements contingent on observanceof performance criteria and reviews

1The IMF's lending is financed from the capital subscribed by member countries; each country is assigned a quota that represents its financial commitment.A member provides a portion of its quota in foreign currencies acceptable to the IMF—or SDRs—and the remainder in its own currency. An IMF loan is dis-bursed or drawn by the borrower purchasing foreign currency assets from the IMF with its own currency. Repayment of the loan is achieved by the borrowerrepurchasing its currency from the IMF with foreign currency. See Box 6.1 on the IMF's Financing Mechanism.

2The basic rate of charge on funds disbursed from the General Resources Account (GRA) is set as a proportion of the weekly interest rate on SDRs and isapplied to the daily balance of all outstanding GRA drawings during each IMF financial quarter. In addition to the basic rate plus surcharge, an up-front com-mitment fee (25 basis points on committed amounts up to 100% of quota, 10 basis points thereafter) is charged on the amount that may be drawn during each(annual) period under a Stand-By or Extended Arrangement. The fee is, however, refunded on a proportionate basis as subsequent drawings are made underthe arrangement. A one-time service charge of 0.5 percent is levied on each drawing of IMF resources in the General Resources Account, other than reservetranche drawings, at the time of the transaction.

42 A N N U A L R E P O R T 2 0 0 2

C H A P T E R 4

Table 4.1IMF Financial Facilities



Access Limit1

Annual : 100% o f quota; cumulative:300% o f quota

Annual : 100% o f quota; cumulative:300% o f quota

N o access limits; access under the facilityonly when access under associated regulararrangement would otherwise exceedeither annual or cumulative limit

Expected access: 300%-500% o f quota

45% o f quota each for export and cerealcomponents. Combined limit o f 55% o fquota for both components

Generally limited to 25% o f quota, thoughlarger amounts can be made available inexceptional cases

140% o f quota; 185% o f quota inexceptional circumstances

Charges 2

Basic rate plus surcharge (100 basis points onamounts above 200% o f quota; 200 basispoints on amounts above 300%)5

Basic rate plus surcharge (100 basis points onamounts above 200% o f quota; 200 basispoints on amounts above 300%)5

Basic rate plus surcharge (300 basis points risingby 50 basis points a year after first disbursementand every 6 months thereafter to a maximumo f 500 basis points)

Basic rate plus surcharge (150 basis points risingby 50 basis points at the end o f the first yearand every 6 months thereafter to a maximum of350 basis points)

Basic rate

Basic rate

0.5%

Repur

Obligationschedule(years)

3 1/4-5

4 1/2-10

2-2 1/2

2-2 1/2

3 1/4-5

3 1/4-5

5 1/2-10

chase (Repayment)

Expectationschedule(years)

2 1/4-4

4 1/2-7

1-1 1/2

1-1 1/2

2 1/4-4

Not applicable

Not applicable

Terms3

Installments

Quarterly

Semiannual

Semiannual

Semiannual

Quarterly

Quarterly

Semiannual

3For purchases made after November 28, 2000, members are expected to make repurchases (repayments) in accordance with the schedule of expectations; theI M F may upon request by a member amend the schedule of repurchase expectations if the Executive Board agrees that the member's external position has notimproved sufficiently for repurchases to be made.

4Credit tranches refer to the size of purchases (disbursements) in terms of proportions of the member's quota in the I M F ; for example, disbursements up to 25percent of a member's quota are disbursements under the first credit tranche and require members to demonstrate reasonable efforts to overcome their balance ofpayments problems. Requests for disbursements above 25 percent are referred to as upper credit tranche drawings; they are made in installments as the borrowermeets certain established performance targets. Such disbursements are normally associated with a Stand-By or Extended Arrangement. Access to I M F resourcesoutside of an arrangement is rare and expected to remain so.

5Surcharge introduced in November 2000.

A N N U A L , R E P O R T 2 0 0 2 43


One theme that emerged from the Board discussionwas that the relationship between ownership and con-ditionality was complex, interactive, and dynamic.While strong conditionality could not compensate forweak ownership, conditionality and ownership could becomplementary and mutually supportive. The IMF'sexperience suggested that conditionality could promoteand strengthen ownership, in particular by demonstrat-ing the authorities' commitment to a course of action.Directors agreed that the IMF would need to pay care-ful attention to each element and the ways in whichthey interacted. In that regard, early involvement ofcountry authorities in the design of a program, andemphasis on the contribution of surveillance as a plat-form and foundation for program design, would beimportant for building and sustaining ownership overthe long run. There was general agreement amongBoard members that the IMF should be open to pro-grams that differed from the staff's preferred options, aslong as the core objectives of the program were notcompromised.

Directors noted that a key policy dilemma for theIMF was how to respond to requests for financial assis-tance by members in need whose commitment toreforms might be weak. Because the IMF was a cooper-ative institution, it would be hard to withhold financialsupport from members simply because of doubts aboutprogram ownership. In such cases, the IMF might needto rely on prior actions and a strengthening of condi-tionality to assure program implementation. Directorsbroadly supported the action plan set out by the stafffor further improving relations with members applyingto use IMF resources. That plan had five principalelements.• The IMF had to strengthen its analysis of political

economy issues to better understand the forces thatmight block or weaken implementation of programs,develop a more effective dialogue on feasible policyoptions, and avoid agreeing to programs that had alow probability of success.

• In cases where a country faced long-term structuralproblems and where the IMF was likely to remainengaged for a considerable period, a country-ledprocess of consensus building was a promising way tostrengthen national ownership of effective policies.

• Directors gave broad support to the idea that IMFtechnical assistance should be given more of amedium- and longer-term focus aimed at capacitybuilding (including program design). Such a shiftcould make technical assistance a more effectiveinstrument in helping countries take ownership ofeconomic policies.

• The primary responsibility for communicating policyintentions and program content to the public restedwith the authorities themselves, but the IMF couldplay an important supporting role.

• The establishment of the Independent EvaluationOffice (IEO) already provided an intensive ex postevaluation of programs. Directors felt that, as theIEO's work unfolded, it should shed light on howownership affected success rates.

Making ImprovementsThe Board had a further discussion on the modalitiesof conditionality in January 2002. Directors consid-ered proposals for greater use of outcomes-basedconditionality and floating-tranche disbursements, andreviewed the use of various tools of conditionality,including performance criteria, prior actions, and pro-gram reviews guided by indicative targets andstructural benchmarks. Directors stressed the need toapply the modalities of conditionality flexibly and totake into account country- and program-specific cir-cumstances, consistent with the objective of enhancingthe effectiveness of IMF conditionality throughstreamlining, focusing, and enhanced ownership.Directors broadly welcomed proposals to base condi-tionality more on outcomes than on specific actions bythe authorities. They noted that providing somefinancing in floating tranches could enhance flexibilityand ownership, while cautioning that the scope for thiscould be limited. Along with an overall streamliningand focusing of conditionality, Directors agreed thatsome tools—notably agreeing to waivers and requiringprior actions—should be used more sparingly. As aresult, Directors envisaged that program reviews couldbecome even more important, and they noted that thisshould be accompanied by a clear delineation of thescope of reviews. In some cases, Directors noted,greater selectivity in approving financial arrangementswould be preferable to requiring extensive prioractions as a way to address instances of poor perfor-mance and limited ownership.

To improve clarity and transparency, Directorsstressed the importance of ensuring that the nature andboundaries of the IMF's conditionality be presentedclearly in all IMF documents. In this connection, theywelcomed the proposal to include in all staff reports onthe use of IMF resources a single standardized tableshowing all the elements of conditionality that wouldbe applied in a given case.

Review of ProgressIn its final meeting before the Spring 2002 I M F CMeeting, the Board in early April 2002 took stock ofthe ongoing review of conditionality. It reviewedexperience in implementing the Interim GuidanceNote that had been in effect since September 2000.Directors welcomed the increased focus on the coreareas of fiscal, financial, and exchange rate policies,and stressed that it was important to retain structuralconditions in the fiscal domain. They also noted that

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C H A P T E R 4



the nature and extent of conditionality continued tovary across countries and that, to a large extent, suchdifferences were appropriate in view of variations incountry circumstances and in the nature of IMFsupport.

While there had been progress in clarifying the scopeand rationale for IMF conditionality in program docu-ments, Directors stressed that more could be done tolay out both the macroeconomic goals of programs andthe criteria for determining whether particular measureswere critical for reaching these goals. In this connection,Board members stressed the importance of theenhanced framework for collaboration with the WorldBank. IMF-supported programs should be consistentwith an overall country framework, which would oftenrequire support from the World Bank and other agen-cies. The nature and extent of this collaboration wouldnecessarily be more extensive in PRGF countries, wherecollaboration with the World Bank was closest.

A number of Directors were concerned that theIMF's initiative in streamlining and focusing condition-ality might not result in an overall reduction of policyconditions when all international financial institutionswere considered and asked that this aspect be moni-tored. At the same time, other Directors expressedconcern that areas no longer covered by IMF condi-tionality might not be adequately covered by otheragencies, particularly the World Bank.

The Managing Director then reported to the Inter-national Monetary and Financial Committee on theprogress of the review of conditionality, noting thatthere was a broad consensus on how to streamline andfocus conditionality and enhance ownership. Thisreport indicated that the IMF was strengthening col-laboration with the World Bank and establishing atrack record of well-focused programs.

The report emphasized that successful and lastingimplementation of policy reforms was not merely afunction of conditionality. More fundamentally, itrequired a commitment on the part of a country's eco-nomic and financial authorities, its political leaders, andother domestic groups, based on their understandingthat reforms were in their country's interest.

In the coming months the IMF would bring thereview to closure. To this end, the Board would con-sider new guidelines that would incorporate theconclusions of the conditionality review with the aim ofreaching agreement before the Committee's September2002 meeting. Periodic reviews of conditionalityshould include assessments of consistency with theguidelines, interaction with the World Bank and otheragencies, and transparent presentation and documenta-tion of conditionality. The aim would be to ensure thatthe IMF remained focused and responsive to its mem-

bers' needs and that IMF-supported programs had astrong chance of success.

Review of Access PolicyThe IMF regularly reviews its policy governing access toits financial resources. This access policy is applied inindividual cases based on certain agreed criteria,described below, and on a system of access limits. Theselimits, which are set on the annual and cumulative useof IMF resources by members, are expressed as a per-centage of a member's quota and are generally reviewedannually. The limit on annual access to IMF resourcesunder the credit tranches (typically in the form ofStand-By Arrangements) and the Extended Fund Facil-ity is currently 100 percent of quota, and the limit onthe cumulative use of IMF resources is 300 percent ofquota. The Board may decide to exceed these limits inexceptional circumstances. In August 2001, the Boardcompleted its review of access policy in the credittranches and under the Extended Fund Facility.

The review covered both the limits on access andthe criteria used to determine access within the limits inindividual cases. Directors decided that the currentannual and cumulative access limits should be main-tained through the end of 2002, and agreed that thecriteria for access to IMF resources agreed upon by theBoard in 1983 remained appropriate. Directors furtheragreed that emergency assistance and the Compen-satory Financing Facility should remain subject to theirown access policies outside the access limits for thecredit tranches and Extended Fund Facility.

The Board determined that it should later review itspolicy involving high access to IMF resources. MostDirectors requested that this review consider financingunder all facilities—including the Supplemental ReserveFacility—and that it be pursued in tandem with thecontinuing discussions by the Board on a frameworkfor private sector involvement in the prevention andresolution of balance of payments crises.

Directors discussed a proposal to supplement accesslimits with an annual access norm, which would serveas an operational benchmark against which access crite-ria would be applied. They agreed that the proposalshould not be pursued, since such a norm could lead tounintended bunching of access levels or be consideredan entitlement.

Directors emphasized that proposals for access toIMF resources should be based on careful and explicitjustification in staff papers. They encouraged the staffto base access proposals on the agreed access criteria,and to be prepared to propose substantial variation inaccess within the agreed access limits based on the cri-teria. Directors noted that the access criteria shouldalso be applied in precautionary arrangements.


remains one of the foremost challenges of our time.There is unprecedented agreement in the internationalcommunity about what needs to be done: a new coop-erative partnership between low-income countries andthe donor community based on mutual accountability,including more aid for countries with strong anddemonstrable commitments to reform, and ensuring amore equitable distribution of the benefits of globaliza-tion. The IMF has been a key player in the overallendeavor and has undertaken numerous activities in thepast year to reinforce and strengthen its support forlow-income countries' reform and developmentefforts.

Global Economic Environment and IMF'sSupport for Low-Income CountriesAs the year progressed, it became clear that the eco-nomic downturn in industrial countries was having anadverse impact on many developing countries, includ-ing low-income member countries (those eligible forsupport under the IMF's Poverty Reduction andGrowth Facility, PRGF, and the International Develop-ment Association). In the aftermath of September 11,which exacerbated the downturn, the IMF workedwith low-income countries to assess the impact of thecyclical situation on external financing needs and neces-sary responses. The main channels through which theweaker global environment affected low-income coun-tries were the decline in nonfuel commodity prices andthe drop in travel and tourism receipts. Lower oilprices, however, helped to lessen the effects of shocksin oil-importing countries, as did strong policy frame-works. In 2001, within this group, sub-Saharan Africancountries with generally strong policies managed tosustain substantially higher per capita G D P growththan in the region as a whole.

Early analysis and consultation indicated an adversebut manageable impact on the external financing needsof many low-income countries, and IMF staff memberscontinued to monitor the situation through ongoingconsultations, including with authorities in more than

50 low-income countries by end-2001. The responseto additional needs has been met through a combina-tion of policy adjustment and additional financing fromexternal sources, including modest PRGF augmenta-tion. For 2002 and 2003, the outlook for developingcountries was seen as depending heavily on the extentof the recovery in the industrial countries, commodityand oil price movements, and sound policy frameworks.In this uncertain environment, concessional financingby the donor community and the international financialinstitutions, particularly for countries pursuing goodpolicies, would be an important safety cushion. TheManaging Director of the IMF emphasized that theIMF stood ready to help if additional financing needsemerged in 2002.

Overall in 2001, the IMF committed new PRGFloan resources of $2.7 billion, a record high, partlyreflecting approval of a few large new arrangements.Projections indicated that new commitments in 2002could reach $2 billion. If high levels of new commit-ments continued thereafter, consideration would beneeded about mobilizing new PRGF loan and subsidyresources. For subsidizing Post-Conflict EmergencyAssistance, the IMF welcomed contributions (as ofApril 15, 2002, from Belgium, the Netherlands,Sweden, Switzerland, and the United Kingdom) thatwere sufficient to finance current and most prospectiveusers of the facility (see Chapter 6).

Broader IMF Support for the Global Effortto Reduce PovertyThe Poverty Reduction Strategy Paper (PRSP)approach was devised as the nexus for bringing devel-opment partners, in-country and internationally,together to support a country's poverty reduction andgrowth strategy. This approach—combined with soundpolicies to promote macroeconomic stability, debtrelief under the enhanced Initiative for HeavilyIndebted Poor Countries (HIPC), and capacity build-ing through technical assistance—is expected to putcountries on a path to sustainable growth and povertyreduction and achievement of the Millennium Devel-

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CHAPTER 5

Poverty Reduction and Debt Relief for Low-Income Countries

Reducing poverty in low-income countries


P O V E R T Y R E D U C T I O N A N D D E B T R E L I E F F O R L O W - I N C O M E C O U N T R I E S

Box 5.1Millennium Development Goals

tion—nationally and internation-ally); address low-income countries'special needs (includes tariff- andquota-free access for their exports;enhanced debt relief for the HIPCs;cancellation of official bilateral debt;and more generous official develop-ment assistance for countriescommitted to poverty reduction);address the special needs of land-locked and small island developingcountries; deal comprehensivelywith developing countries' debtproblems through national andinternational measures to make debtsustainable in the long term; incooperation with the developingcountries, develop decent andproductive work for youth; incooperation with pharmaceuticalcompanies, provide access to afford-able essential drugs in developingcountries; in cooperation with theprivate sector, make available thebenefits of new technologies(especially information and

• Improve maternal health: reduce bythree-quarters the maternal mortal-ity rate;

• Combat HIV/AIDS, malaria, andother diseases: halt and begin toreverse the spread of H I V / A I D S ;halt and begin to reverse the inci-dence of malaria and other majordiseases;

• Ensure environmental sustainability:integrate the principles of sustain-able development into countrypolicies and programs; reverse theloss of environmental resources;reduce by half the proportion ofpeople without sustainable access tosafe drinking water; achieve signifi-cant improvement in the lives of atleast 100 million slum dwellers by2020; and

• Develop a global partnership fordevelopment: develop further anopen trading and financial systemthat is rule-based, predictable, andnondiscriminatory (includes a com-mitment to good governance,development, and poverty reduc-

All 189 member states of the UnitedNations have pledged to meet the fol-lowing Millennium DevelopmentGoals by 2015:1

• Curtail extreme poverty and hunger:cut by half the proportion of peopleliving on less than a dollar a day;

• Achieve universal primary education:ensure that all boys and girls com-plete a full course of primaryschooling;

• Promote gender equality andempower women: eliminate genderdisparity in primary and secondaryeducation—preferably by 2005, andat all levels by 2015;

• Reduce child mortality: reduce bytwo-thirds the mortality rate amongchildren under the age of five;

1Where relevant, 1990 is used as the baseyear. More information on the MillenniumDevelopment Goals and the text of the U NGeneral Assembly's Millennium Declarationcan be accessed on the Internet atwww.un.org/millenniumgoals/index.htmland at www.developmentgoals.com.

opment Goals (see Box 5.1). The IMF worked proac-tively during the year to further these ends, throughpolicy dialogue, support under the PRGF andenhanced H I P C Initiative, and technical assistance forcapacity building (see below). In parallel with theseefforts, the staffs and Executive Boards of the IMF andthe World Bank completed a joint review of the PRSPapproach. The Executive Boards of the IMF and theWorld Bank also discussed a paper on actions tostrengthen the tracking of poverty-reducing publicspending in HIPCs. This paper contained countryaction plans agreed with IMF and Bank staff tostrengthen the capacity of HIPCs to track poverty-reducing public spending in the short and mediumterm. In addition, the IMF's Executive Board reviewedthe implementation of the PRGF and considered thestatus of implementation of the H I P C Initiative andthe HIPCs ' achievement of long-term debtsustainability.

Finally, the IMF sponsored—jointly with the WorldBank, Asian Development Bank, and the EuropeanBank for Reconstruction and Development—an initia-tive to help the seven low-income countries of theCommonwealth of Independent States to promotepoverty reduction and debt sustainability.

The PRSP ReviewIn their review of the PRSP approach in March 2002,Directors welcomed the contributions from repre-sentatives of low-income countries, internationaldevelopment agencies, and civil society organizations,both in written form and in the context of fourregional conferences, as well as an international con-ference held in Washington in January 2002 (see Box5.2). The conferences provided an important opportu-nity for an exchange of views among internationalpartners on the PRSP process, including the role ofthe IMF in that process, particularly through thePRGF.

The Board's review revealed an encouraginglybroad-based endorsement of the PRSP approach as theumbrella framework and vehicle for organizing domes-tic and international efforts to achieve povertyreduction in low-income countries (see Box 5.3).Directors reaffirmed the underlying principles thatnational poverty reduction strategies should becountry-driven, results-oriented, comprehensive, andlong-term in perspective, and should foster domesticand external partnerships that improve the effectivenessof development assistance. The review also underscoredthe strong ownership of PRSPs among governments,

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Box 5.2International Conference on Poverty Reduction StrategiesTwo years after the IMF and the WorldBank adopted a new approach topoverty reduction based on broad-based country ownership of policiesand programs, an International Con-ference on Poverty ReductionStrategies was held in Washington,D.C . , during January 14-17, 2002.The conference—which broughttogether representatives from 60 low-income countries, their devlopmentpartners, and civil society—provided anopportunity to take stock, share experi-ences and concerns, and fine-tunestrategies in order to be better preparedfor, and to ensure the achievement of,the programs' objectives. The PovertyReduction Strategy Paper (PRSP)approach embodies the principles ofself-help, country ownership, andaccountability. As such, the PRSPexperience, its record to date, andmeans of enhancing its effectivenesswere central themes of the discussions.

Prior to the conference, regionalforums for low-income countries inAfrica, East Asia, Latin America, East-ern Europe, Central Asia, and theCaucasus had brought governmentofficials, parliamentarians, and represen-tatives of civil society and the privatesector together with multilateral andbilateral aid organizations to share early

experiences on the design and imple-mentation of the PRSP approach.Participants agreed that the early PRSPshad made poverty reduction a centralcomponent of policy development inthese countries and had broadened par-ticipation in the formulation ofstrategies, as well as identifying theneed to diagnose the nature and causesof poverty more systematically.

I M F Managing Director HorstKohler described the PRSP approach asa work in progress where everyone islearning by doing. While underscoringthe importance of self-help efforts toachieve peace, democracy, andgood governance, Mr . Kohler stressedthe need for official development assis-tance and encouraged donors toincrease funding and better coordinatetheir aid efforts. In this context,PRSPs can serve as a framework withinwhich to coordinate and directresources toward antipoverty efforts.Donors have strongly supported thePRSP approach and are increasinglylinking their financial assistancestrategies to it.

In addition, the IMF is stepping upits efforts to help countries with capac-ity building, making them betterequipped to tackle poverty and achievesustainable growth (see Chapter 7).

more open dialogue wi th civil society, and greaterprominence of poverty reduction in the policy debate.At the same time, Directors recognized that progresshad been uneven, depending on each country's startingpoint, capacity, and priorities, and that the design andimplementation of country-owned poverty reductionstrategies was a complex task that taxed countries' lim-ited institutional capacity. The PRSP approach was stillevolving, and everyone involved was learning as theywent along. The PRSP approach was a long-termapproach that required patience, perseverance, andsustained effort.

While progress to date had been encouraging,Directors stressed that there was more that could bedone. The main challenges ahead for improving thepreparation, content, and implementation of povertyreduction strategies were:• To encourage and broaden the systematic participa-

tion of stakeholders in developing and monitoringPRSPs;

• To strengthen the content andimplementation of PRSPs,notably with respect to develop-ing pro-poor growth policies,through greater specificity onmacroeconomic targets and link-ages between policies and povertyoutcomes, systematically under-taking poverty and social impactanalyses of major policy choices,and strengthening public expendi-ture management systems;

• To align donor strategies andassistance fully behind the PRSPapproach; and

• To improve monitoring and eval-uation of the effectiveness ofpoverty reduction strategies andprogress toward growth andpoverty reduction targets, includ-ing the Millennium DevelopmentGoals where relevant.Directors noted that participatory

processes were beginning to takehold in PRSP countries but that theprocess needed to be strengthenedto include a broad range of domesticstakeholders and development part-ners. In particular, while governmentleadership must be respected, therewas greater scope for including par-liaments, the business community,trade unions and other workers'groups, and groups representing thepoor. There was also scope for moreopenness and transparency in deci-

sion making and in the dialogue among governments,stakeholders, and their partners.

The key challenge that remained was to improve thequality of countries' policies and institutions and thepolitical commitment that must underpin sustainedimplementation. Country poverty reduction strategies,Directors emphasized, needed to focus systematicallyon how to ensure sustainable pro-poor growth, estab-lish an enabling environment for the private sector, andstrengthen the linkages between macroeconomic andstructural/sectoral policies and poverty outcomes. Par-ticular attention needed to be placed on designingappropriate measures to respond to both endogenousand exogenous shocks. Public expenditure manage-ment systems also needed to be improved to ensurethat poverty-reducing spending is effectively deliveredand monitored. Finally, Directors stressed the need fordevelopment partners to assist countries in undertakingsystematic poverty and social impact analysis of majorpolicy choices, and in designing compensatory

48 A N N U A L R E P O R T 2 0 0 2



measures whenever the adverse effects of policies couldnot be avoided. In all these areas, there was a comple-mentary agenda for research and the development ofbetter analytical tools.

Donors also needed to better align their assistancebehind country-led poverty reduction strategies. Therewas a pressing need for donors to reduce the cost forlow-income countries of mobilizing and utilizing aid,so that both aid resources and limited country capacitycould be used more effectively. Directors urged donorsto harmonize and simplify procedures and reportingrequirements, and to align assistance with nationalcycles of government decision making, includingannual budget cycles. In addition, more information onaid commitments and greater predictability in aid flows,especially to those countries implementing sound poli-cies, would help low-income countries to plan andcarry out their strategies.

As countries and development partners gained moreexperience in the implementation of PRSPs, it wouldbe possible to assess more fully the impact on povertyoutcomes and indicators. The success of the PRSPapproach would ultimately be judged by results—namely, the delivery of sustainable growth and povertyreduction. At the country level, monitoring and evalua-tion capacity needed to be strengthened, and attentionshould be directed to developing indicators that couldmonitor progress toward key objectives—an area wherethe assistance of development partners would also beneeded.

Review of the Poverty Reduction andGrowth FacilityThe Board's review of the PRGF in March 2002allowed the IMF the opportunity to look carefully atthe content of recent IMF-supported programs and itswork in support of low-income countries. Directorsnoted that since the facility was introduced in 1999,more than 40 countries have had new PRGF arrange-ments or have had arrangements under the EnhancedStructural Adjustment Facility (the predecessor of thePRGF) transformed to reflect the new features of thePRGF. Given that it was too early to make an assess-ment of the PRGF's direct impact on poverty, thereview focused on the design of PRGF-supported pro-grams to see if they had met the expectations set outfor them (see Box 5.4).

Directors agreed that there had been good progressto date in aligning program design with the goals ofthe facility. Policy goals, including macroeconomicframeworks in PRGF-supported programs, were gener-ally derived from and consistent with those of PRSPs.There had been an increased allocation of budgetaryresources toward poverty-reducing spending, and fiscalframeworks were accommodating higher spending tosupport country-defined poverty reduction goals.

Structural conditionality had been streamlined tofocus primarily on measures critical to the success ofPRGF-supported programs, and within the IMF's areaof expertise, while providing better coordination anddefinition of the IMF's role vis-a-vis that of the WorldBank. The IMF would avoid becoming involved inmicromanagement, but would promote the ownershipof programs. Directors were of the view that outcomes-based conditionality would give the authorities greaterflexibility and accountability in choosing how toachieve the desired results. In short, these efforts atstreamlining conditionality were creating greaterscope for national choices in program design andimplementation.

There was, however, a need to build on thisprogress in several specific areas:• A n increased focus on the sources of pro-poor

growth and the design of policies to facilitate suchgrowth;

• Further efforts to improve the quality and efficiencyof government spending;

• More systematic treatment of poverty and socialimpact analysis;

• Broader and deeper discussion and analysis ofmacroeconomic frameworks and structural policies;

• Greater emphasis on the risks of program implemen-tation, including those related to growthprojections, vulnerability to external shocks, andshortfalls in financing;

Box 5.3What Is a PRSP?Poverty Reduction Strategy Papers (PRSPs) are prepared bylow-income countries through a participatory process involv-ing domestic stakeholders as well as external developmentpartners, including the IMF and World Bank. Updated peri-odically (up to five years) with annual progress reports, PRSPsdescribe the country's macroeconomic, structural, and socialpolicies and programs over a three-year or longer horizon topromote broad-based growth and to reduce poverty, as wellas associated external financing needs and major sources offinancing.

Recognizing that preparation of a PRSP is a lengthyprocess, the World Bank and IMF have agreed to provideconcessional assistance on the basis of Interim PRSPs.I-PRSPs summarize the current knowledge and analysis of acountry's poverty situation, describe the existing povertyreduction strategy, and lay out the process for producing afully developed PRSP in a participatory fashion.

The country documents, along with the accompanyingI M F / W o r l d Bank Joint Staff Assessments (JSAs), are madeavailable on the IMF and World Bank websites in agreementwith the member country. PRSPs and I-PRSPs, as well aspolicy documents related to the PRSP approach, can be foundon the IMF's website.

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clear leaders of the process, and thatthe program is properly embedded inthe country's broader strategy forgrowth and poverty reduction. IMFstaff are required to explain to theExecutive Board how PRGF-supportedprograms derive from the povertyreduction strategy and how they com-plement the World Bank's activitiesand conditionality.

A n important outcome of theapproach is greater attention to theeconomic aspects of governance. Still,greater emphasis needs to be given tothe social impact of major reformsunder PRGF-supported programs,including the impact on the poor (nor-mally undertaken by the World Bankor other donors, where governmentslack the capacity to do this work them-selves). Where necessary, measures tooffset harmful effects on the poorshould be incorporated in programs.Given improved country ownership,PRGF conditionality can and should bemore selective, focusing on measurescentral to success of the country's strat-egy, particularly in the macroeconomicand financial areas.

• Better coordination of program design and condi-tionality with the World Bank; and

• More effective and extensive communications withauthorities, donors, and civil society in PRGFcountries.Economic growth was critical for achieving poverty

reduction, Directors stressed. Attention to the sourcesof growth would therefore be essential in developingappropriate policies and projections. It would beimportant to underpin the growth projections inPRGF-supported programs with better analysis of theassociated structural reforms to develop the private sec-tor, improve property rights, increase foreign anddomestic investment, enhance external competitiveness,diversify exports, and increase labor productivity. Goodgovernance and strong institutions, moreover, wouldbe important to ensuring growth prospects.

Almost all PRGF-supported programs had placedsubstantial emphasis on strengthening public expendi-ture management. But a substantial reform agendaremained, Directors noted, including with respect tothe comprehensiveness of budgetary data, executingand reporting budget outcomes, and disseminating this

information to the public. ForHIPCs, in particular, action plansdesigned with the collaboration ofthe IMF and World Bank wouldneed to be implemented tostrengthen capacity to track poverty-reducing spending, and publicspending more widely (see above).IMF staff are now required to reporton the implementation of theseaction plans in program documentssent to the Executive Board.

Directors welcomed the progressmade in incorporating poverty andsocial impact analysis but indicatedthat these assessments should bedone for more PRGF-supported pro-grams. Documents for more thanhalf of the current programs providesuch analyses. Going forward, theapproach would be progressivelystrengthened so that a description ofthe assessment being carried out inthe country—including a qualitativedescription of the likely impact ofmajor macroeconomic and structuralmeasures on the poor and a sum-mary of countervailing measuresbeing implemented—would becomea routine feature of programdocumentation.

Both the PRSP and PRGF reviewsunderscored the importance of con-

sidering alternative policy choices and the constraintsand trade-offs involved. The aim was for PRGF-supported program documentation to set out clearlythe program's role in the context of the country's over-all poverty reduction strategy, as well as the optionsthat were considered and the commitments made bythe authorities in the context of the program. How-ever, in their discussion, Directors stressed that thiswould need to be done in a manner consistent withdemonstrating the IMF staff's support for the programand respecting the need for frank and confidential dis-cussions between IMF staff and the authorities.

In their review of the PRGF, Directors also pointedto the need for better communication among all thepartners involved in the development and execution ofcountries' poverty reduction strategies. In this regard,IMF staff should stand ready to support nationalauthorities in their efforts to explain to a broaderaudience the analysis on the links between the macro-economic framework and growth and poverty reductionoutcomes in the context of PRGF-supported programs.

The Board's PRGF review underscored the diverseneeds of low-income countries for IMF support and

50 A N N U A L R E P O R T 2 0 0 2

As use of the PRGF has evolved,distinctive features of the facility haveemerged:• Broad public participation and

increased national ownership;• Embedding the PRGF in the coun-

try's overall strategy for growth andpoverty alleviation;

• National budgets that are morefavorable to the poor and economicgrowth;

• Ensuring appropriate flexibility infiscal targets;

• More selective structuralconditionality;

• Emphasis on measures to improvepublic resource management andaccountability; and

• Poverty and social impact analysis ofmajor macroeconomic adjustmentsand structural reforms.These features are closely related,

and the overall approach is similarlycohesive. Basing a country's PRGF-supported program on the PovertyReduction Strategy Paper (PRSP) aimsto ensure that civil society has beeninvolved in formulating the program,that the national authorities are the

Box 5.4Key Features of Programs Supported by the Poverty Reductionand Growth Facility



recommended further work on the adequacy of currentfacilities in meeting these needs. As such, during thecoming year the IMF should also examine issues sur-rounding the structure of the PRGF and how to adaptthe current structure of IMF financial assistance for thepoorest countries, including those affected by com-modity price or other shocks, countries emerging fromconflict, and countries with little or no balance of pay-ments need.

HIPC Initiative and Debt SustainabilityDebt relief can contribute to poverty reduction insignificant ways. In April 2002 the Executive Boardreviewed the status of the H I P C Initiative and theHIPCs ' attainment of long-term external debt sustain-ability. Directors noted that, as of the time of theirdiscussion, 26 countries had reached their decisionpoint under the enhanced H I P C Initiative (see Figure5.1), with commitments for $40 billion (in nominalterms) of debt relief (see Table 5.1). By cutting theratio of debt service to exports by about a third, H I P Crelief would provide annual budgetary savings for thesecountries varying between 1/2 of 1 percent and 1 1/2 per-cent of G D P , allowing for significant increases inpro-poor spending. Directors expressed concern that,for developing countries as a whole, the recent globaleconomic slowdown, coupled with a significant declinein many primary commodity prices over the past twoyears, had weakened the HIPCs ' growth and exportperformance. Moreover, the slowdown had led to adeterioration of the external debt indicators for many,but not all, HIPCs. There were considerable differ-ences in the evolution of the debt indicators among theHIPCs, reflecting differences in implementation of eco-nomic reform programs and in exposure to shocks. Theimpact of these unfavorable developments on the out-look for debt sustainability of the HIPCs woulddepend on a number of factors, notably the adequacyof policy responses and supporting resource transfers.The outlook for the sustainability of external debt hadworsened for most of the 21 countries in the interimperiod (that is, the period between their decision andcompletion points) at end-April 2002, primarilybecause of lower exports, but had not necessarily beenseriously impaired. The ratio of the net present value ofdebt to exports at the completion point was projectedto be above the 150 percent threshold in 8-10 coun-tries; deviations for 6 of these had already beenanticipated at the time of the decision points, althoughto a lesser degree. For these countries, the debt inexcess o f the H I P C threshold could range from $0.5billion to $0.9 billion in net present value terms.

For countries in the interim period, Directorspointed out, the enhanced H I P C Initiative allows someflexibility in exceptional cases to top-up debt relief atthe completion point for countries where exogenous

factors have caused fundamental changes in their eco-nomic circumstances. The enhanced H I P C Initiativethus provides for the possibility of additional debt reliefat the completion point. However, Directors stressedthat potential additional H I P C relief was not meant tocompensate for slippages in policy reform, nor could itbe provided on an ongoing basis to deal with futureeconomic shocks. In the near term, to help countriesdeal with the deterioration in the external environment,some countries might require additional donor sup-port, and increased interim relief might be helpful.Providing any additional debt relief at the completionpoint would raise the overall costs of the H I P C Initia-tive, Directors noted, and the financing implications ofthis would need to be explored in due course. Inaddition, HIPCs would need to improve their debt-management capacity, with donor assistance.

Capacity BuildingBoth the PRSP and PRGF reviews underscored thatcapacity building is critical for full ownership and effec-tiveness of the reform agenda in PRGF countries asnational expertise is developed (including in policychoices, expenditure management, and poverty andsocial impact analysis). In low-income countries, it isoften not a lack of political will that impedes reformbut a lack of implementation capacity. Thus, the IMFhas continued to strengthen its capacity-building tech-nical assistance and training activities in the institution'score macroeconomic and financial areas of responsibil-ity, including public finance and administration,financial sector development, development of soundstatistical systems, and promotion of data dissemination(see Chapter 7). The PRSP approach is increasinglyproviding a means of coordinating the IMF's effortswith those of other technical assistance providers.Regional initiatives in the Pacific and in the Caribbeanare allowing the IMF to make more efficient use of itslimited resources for technical assistance, while ensur-ing that activities are closely aligned with local andregional priorities identified through IMF surveillanceand, where available, PRSPs. In this vein, the IMFintends to establish two pilot regional technical assis-tance centers in sub-Saharan Africa in the second halfof 2002 (see Chapter 7), as part of IMF support for theNew Economic Partnership for Africa's Development(see Box 5.5). These centers aim to raise the effective-ness of the IMF's technical assistance projects byfostering ownership, enhancing accountability, increas-ing responsiveness, and strengthening coordinationamong technical assistance providers.

CIS InitiativeIn FY2002 the IMF worked with the World Bank,

the Asian Development Bank, and the European Bankfor Reconstruction and Development on an Initiative


C H A P T E R 5

Figure 5.1Enhanced HIPC Initiative F low Chart

First Stage

• Country establishes three-year track record of good performance and develops together with civil society a PovertyReduction Strategy Paper (PRSP); in early cases, an Interim PRSP may be sufficient to reach the decision point.

• Paris Club provides flow rescheduling on Naples terms, i.e., rescheduling of debt service on eligible debt falling due(up to 6 7 percent reduction on a net present value (NPV) basis).

• Other bilateral and commercial creditors provide at least comparable treatment.1

• Multilateral institutions continue to provide adjustment support in the framework of World Bank- and IMF-supportedadjustment programs.

Decision PointOrEither

Paris Club stock-of-debt operation under Naples terms andcomparable treatment by other bilateral and commercialcreditors

is adequatefor the country to reach external debt sustainability.========> Exit(Country does not qualify for HIPC Initiative assistance.)

Paris Club stock-of-debt operation under Naplesterms and comparable treatment by other bilateral andcommercial creditors

is not sufficientfor the country to reach external debt sustainability.========> World Bank and IMF Boardsdetermine eligibility for assistance.

All creditors (multilateral, bilateral, and commercial) commit debt relief to be delivered at thefloating completion point. The amount of assistance depends on the need to bring the debt toa sustainable level. This is calculated based on latest available data at the decision point.

Second Stage

• Country establishes a second track record by implementing the policies determined at the decision point (which are triggers toreaching the floating completion point) and linked to the (Interim) PRSP.

• World Bank and IMF provide interim assistance.• Paris Club provides flow rescheduling on Cologne Terms (90 percent debt reduction on NPV basis or higher if needed).• Other bilateral and commercial creditors provide debt relief on comparable terms.1

• Other multilateral creditors provide interim debt relief at their discretion.• All creditors and donors continue to provide support within the framework of a comprehensive poverty reduction strategy

designed by governments, with broad participation of civil society and donor community.

"Floating Completion Point"

• Timing of completion point for nonretroactive HIPCs (i.e., those countries that did not qualify for treatment under the original HIPCInitiative) is tied to at least one full year of implementation of a comprehensive poverty reduction strategy, including macroeco-nomic stabilization policies and structural adjustment. For retroactive HIPCs (those countries that did qualify under the originalHIPC Initiative), the timing of the completion point is tied to the adoption of a comprehensive PRSP.

• All creditors provide the assistance determined at the decision point; interim debt relief provided between decision and comple-tion points counts toward this assistance.

• All groups of creditors provide equal reduction (in NPV terms) on their claims as determined by the sustainability target. This debtrelief is provided with no further policy conditionality.- Paris Club provides stock-of-debt reduction on Cologne terms (90 percent NPV reduction or higher if needed) on eligible debt.- Other bilateral and commercial creditors provide at least comparable treatment on stock of debt.1

- Multilateral institutions provide debt relief, each choosing from a menu of options, and ensuring broad and equitable participa-tion by all creditors involved.

Recognizing the need for flexibility in exceptional cases.

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Table 5.1Progress Status of Countries Under the Enhanced HIPC Initiative, as of end-April 2002CompletionPoints Reached (5)

Decision PointsReached (21)

Decision PointNot Yet Reached (12)

SustainableCases (4)

BoliviaBurkina FasoMozambiqueTanzaniaUganda

BeninCameroonChadEthiopiaGambia, TheGhanaGuineaGuinea-BissauGuyanaHondurasMadagascar

MalawiMaliMauritaniaNicaraguaNigerRwandaSao Tome and

PrincipeSenegalSierra LeoneZambia

BurundiCentral African Rep.ComorosCongo, Dem. Rep. ofCongo, Rep. ofCote d'Ivoire2

Lao P.D.RLiberiaMyanmarSomaliaSudanTogo

AngolaKenyaVietnamYemen1

Sources: HIPC documents; and IMF and World Bank staff estimates.1Yemen reached its decision point in June 2000. Its debt sustainability analysis indicated that the country has a sustainable debt burden after the applica-

tion of traditional debt relief mechanisms. The Paris Club provided a stock-of-debt operation on Naples terms in July 2001.2Cote d'Ivoire had reached its decision point under the original HIPC Initiative, but has not yet reached its decision point under the enhanced Initiative.

to accelerate growth and poverty reduction in sevenlow-income countries of the Commonwealth of Inde-pendent States (Armenia, Azerbaijan, Georgia, theKyrgyz Republic, Moldova, Tajikistan, and Uzbekistan)to accelerate growth and poverty reduction. Primaryresponsibility for intensifying their development andreform efforts would rest with the CIS-7 countriesthemselves, but the Initiative calls for the internationalcommunity to provide strong complementary supportto countries following sound reform policies—to helpthese countries strengthen the conditions for growth,poverty reduction, and debt sustainability—boththrough international and regional institutions andthrough governments acting bilaterally.

Under the Initiative, the CIS-7 countries wouldundertake reforms to:• Promote policy and institutional reform more con-

sistently and resolutely, within the framework offully participatory poverty reduction strategies;

• Strengthen the capacity of their governments, buildgreater public accountability, and strive to reducecorruption;

• Ensure macroeconomic stability, promote the trans-parency of public finances, strengthen tax collection,and adopt appropriate policies (including debt-management policies) to ensure that debt levels aresustainable;

• Implement growth-promoting structural reforms,including energy sector reform (throughunbundling, setting tariffs that reflect costs, andeliminating arrears and noncash settlements), main-taining open trade regimes, and creating a favorableinvestment climate to encourage the growth of smalland medium-sized enterprises;

• Target scarce resources to priority social services andsafety nets, including by ensuring the adequate pro-vision of health and education services and by actingnow to counter the problems of H I V / A I D S , tuber-culosis, malaria, and drug trafficking and abuse; and

• Work with their neighbors, with the support of theinternational community, to resolve conflicts andfoster regional cooperation, especially in trade andtransit, water, and energy.

The role of trade and development partners andcreditors under the Initiative would be to extend sup-port to those CIS-7 countries implementing strongreforms, including:• More concessional financial support, as well as debt

restructuring or debt relief where needed, in con-junction with strong reform programs, so thatresources are well used;

• Increased access for CIS-7 countries to industrialcountries' markets, and promotion of directinvestment;

• Improved coordination between development agen-cies, anchored in country-led poverty reductionprograms; and

• Added support from international and regional insti-tutions through technical assistance, policy advice,and concessional financial assistance (includinggrants) in support of the reform efforts of the CIS-7countries.

Support by the International CommunityThe IMF's work to improve development outcomes inits low-income member countries increasingly takesplace within a larger, and complementary, international


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Box 5.5Africa InitiativesIMF Managing Director Horst Kohlerhas called for a "two-pillar approach"to the war on poverty. The first pillar isbased on the recognition by developingnations that they themselves have pri-mary responsibility for tackling povertyand that this requires a commitment togood governance and accountability.The second pillar is based on increasedand better-coordinated support fromthe industrial countries, and a willing-ness to open their markets to theexports of poorer nations and removesubsidies.

Mr . Kohler sees African initiatives,such as the New Economic Partnershipfor African Development (NEPAD) , asan integral part of this two-pillarapproach. Conceived by leaders fromthe member states of the Organizationof African Unity (OAU) , workingtogether to achieve economic growthfor all African nations and to reducewidespread poverty, the partnership'score objectives are to:• encourage peace, democracy, and

good governance;• design and implement action plans

to develop key pro-poor sectors:health care, education, infrastruc-ture, and agriculture;

• achieve economic integration at theregional and global levels by build-ing a strong private sector andfostering a climate conducive todomestic and foreign investment;and

• develop more productive partner-ships with Africa's bilateral andmultilateral development partners.In order to help sustain the commit-

ment of African nations to growth andpoverty reduction, the IMF has launcheda complementary Capacity-Building Ini-tiative aimed at strengthening economicgovernance and the domestic capacity ofgovernments to carry out sound eco-nomic poverty-reducing policies. Twonew IMF technical assistance centers insub-Saharan Africa (see Chapter 7) willassist governments to achieve thesegoals, including through developingeffective poverty-monitoring systems,implementing accountability mecha-nisms, and identifying more effectiveways to involve local governments indecision making.

To garner international support, theIMF is calling for more developmentassistance; thus far, the United Statesand the European Union have commit-ted to increase their aid to countrieswith strong policies. Efforts to helpAfrican nations achieve economic inte-gration at the regional and global levelsinclude promoting greater involvementof the private sector through initiativessuch as investors' councils and motivat-ing investment through soundeconomic and fiscal frameworks. At thesame time, the IMF is strongly encour-aging industrial nations to removesubsidies and eliminate trade barriersfor African exports.

The IMF has been working hard topromote true national ownership ofprograms. African countries themselveshave shown the way forward by theprogress they have made.• Mozambique and Uganda, once

devastated by war, are now amongthe most rapidly growing Africancountries.

• In Botswana and Cameroon, rev-enues from diamonds and oil arebeing used to help build morediversified economies.

• Mauritius and Tanzania haveachieved noteworthy success in pro-moting stronger private sectors andattracting foreign investment.

• In Burkina Faso, policies to increaseagricultural production and cottonexports are raising growth perfor-mance and improving the incomesof the rural poor.The Poverty Reduction Strategy

Paper (PRSP) approach is the guidingframework for the IMF's partnershipwith Africa, acting as a core mecha-nism to help these nationsincorporate regional poverty reductionpriorities into their national programsand to coordinate international sup-port. As of end-April 2002, overtwo dozen countries in sub-SaharanAfrica were preparing PRSPs with I M Fand World Bank assistance, and 23African countries had qualified fordebt relief under the enhanced H I P CInitiative.

effort. The I M F is committed to help support theMillennium Development Goals agreed by the interna-tional community (see Box 5.1). In November 2001,the Managing Director of the IMF and the President ofthe World Bank proposed, at the Ottawa meetings ofthe I M F and Bank, a two-pillar approach for fightingglobal poverty: first, low-income countries must helpthemselves by implementing sound policies, strength-ening institutions, and improving governance; second,for those countries that help themselves, the interna-tional community must provide strong supportthrough greater trade opportunities as well asincreased, and better delivery of, aid flows. The IMFwill also be guided by the "Monterrey Consensus,"which emerged from the United Nations Conferenceon Financing for Development in March in Monterrey,Mexico (see Box 5.6).

The international community must open marketsand phase out trade-distorting subsidies, especially inareas where developing countries have a comparativeadvantage, such as agriculture, processed foods, textilesand clothing, and light manufactures. Greater trans-parency about and public awareness of the costs of thestatus quo to the world's poor are especially importantif the political ground is to be prepared for seriousreform.

In keeping with the outcomes of Monterrey andDoha, the IMF has stepped up its surveillance of issuesrelated to market access (see Chapter 2) in the contextof its Article IV consultations with member countries.Low-income countries need support to strengthentheir ability to take full advantage of the opportunitiesof the global market and the multilateral trading sys-tem. As a participating agency under the Integrated

54 A N N U A L R E P O R T 2 0 0 2



Framework for Trade-Related Tech-nical Assistance, the I M F is helpingby providing diagnostics of the tradeenvironment in low-income coun-tries, by identifying policy andassistance priorities, and by provid-ing technical assistance in its areas ofexpertise (see Chapter 7).

Effective monitoring of progresstoward the Millennium DevelopmentGoals is key to staying on track andfor building sustained support forgreater international assistance topoor countries. At the global level, acomprehensive and transparentsystem to monitor progress towardachieving the Millennium Develop-ment Goals is being developed, andthe IMF has welcomed the effortsbeing undertaken by the UnitedNations to this end. The IMF partici-pated in an interagency workinggroup (including the World Bank,O E C D , and U N agencies) led by theU N to agree on the targets and indi-cators to monitor progress towardthe Millennium Development Goals.These will form the basis of the U NSecretary-General's first MillenniumReport to the General Assembly inSeptember 2002. The IMF's specificinput to this global monitoring system is the provisionof data on H I P C debt relief and contributions to themonitoring of the indicators on market access (bothpart of the "global partnership for development"Millennium Development Goal). As part of this process,the respective responsibilities of poor countries and theirdevelopment partners—donor countries, internationalinstitutions, the private sector, and civil society—willneed to be identified more clearly. On this basis betteraccountability can be established.

Looking AheadThe financial year saw slowdown, sudden shocks, anduncertainty—but it also witnessed the arrival of anunprecedented degree of agreement about what isrequired to overcome world poverty. The Monterrey

Putting development issues at the cen-ter of the global agenda—an importantgoal of developing and developednations alike—was the theme of theInternational Conference on Financingfor Development held in Monterrey,Mexico, March 18-22, 2002. The con-ference served as a catalyst for variouselements of the new development part-nership being forged among debtorand donor governments, aid organiza-tions, international financialinstitutions, and the private sector—apartnership based on mutual account-ability and commitment to promotinggrowth and reducing poverty. TheMonterrey Conference affirmed thatthe best way to help developing coun-tries is to improve the environment forinternational trade. The emphasis oncoherence between aid and trade poli-cies echoed the key message of theDoha Declaration of the W T O Minis-terial Meeting, held in November 2001in Doha, Qatar (see Box 2.2 in Chapter2). The consensus at the Doha Ministe-rial Conference was that the bestdefense against aid dependency and

recurrent debt problems is to buildprosperity by expanding and diversify-ing exports and attracting foreign directinvestment. Estimates of the possiblebenefits to low-income countries fromincreased trade are substantially higherthan current concessional flows.

The Monterrey Conference wel-comed the commitments by theEuropean Union and the United Statesto increase aid flows but noted thatmore needs to be done. Well-directedaid, combined with strong reformefforts, can greatly reduce poverty.However, building strong public sup-port in donor countries for increasedaid will require greater understandingof aid as an investment in peace, stabil-ity, and shared prosperity and—equallyimportant—a demonstration by poorcountries that they are putting aid togood use.

The World Summit on SustainableDevelopment in Johannesburg, SouthAfrica, in late August 2002 is expectedto follow up on some of the accom-plishments of the MonterreyConference.

Consensus defined the right priorities and made it clearthat durable progress is not possible without good gov-ernance, respect for the rule of law, and policies andinstitutions that unlock creative energies and promoteinvestment—including foreign direct investment. Italso recognized that the international communityshould provide faster, stronger, and more comprehen-sive support to those low-income countries thatprovide this environment.

To meet the Millennium Development Goals,progress must be made simultaneously on many frontsby many actors. The implementation of the MonterreyConsensus should be a next chapter in internationalefforts to create a better world, and the IMF remainscommitted to contribute—in its areas of expertise—tothis global effort to combat poverty.

A N N U A L R E P O R T 2 0 0 2 55

Box 5.6Conference on Financing for Development, Monterrey, Mexico


CHAPTER

Financial Operations and Policies in FY2002

The key financial developments in FY2002 included:A n increase in outstanding IMF loans as the slow-down in the world economy contributed to aworsening of the balance of payments difficulties ofseveral members that experienced reduced access tointernational capital markets.Continued efforts to assist the IMF's poorest mem-bers with implementation of initiatives to reduce thedebt burdens of the heavily indebted poor countriesand to focus the IMF's concessional lending activi-ties more explicitly on poverty reduction.Commencement by the IMF of a review of the sizeand distribution of members' capital subscriptions andconsideration of a possible general allocation of SDRs.

Box 6.1Public Information on I M F FinancesIn recent years, the IMF has significantly expanded the vol-ume, quality, and timeliness of information available to thepublic on its finances. During FY2002, a new edition of theIMF's standard pamphlet providing detailed information onits financial structure was published.1 The IMF also providesbackground and current data on its financial activities on theIMF's website (http:/www.imf.org/external/fin.htm),including:• Current financial position• I M F liquidity and sources of financing• S D R valuation and interest rate• Rates of charge on IMF loans and the interest rate paid

to creditors• Country information on

— Current lending arrangements— Loan disbursements and credit outstanding— Loan repayments and projected obligations— Arrears— S D R allocations and holdings

• Financial statements

1Treasurer's Department, Financial Organization and Operationsof the IMF, IMF Pamphlet Series, No. 45, 6th ed. (Washington:International Monetary Fund, 2001).

56 A N N U A L R E P O R T 2 0 0 2

The IMF is a cooperative institution that providesfinancing to member countries experiencing balance ofpayments problems. It extends financing through threechannels:

Regular Operations. The IMF provides financingfrom a revolving pool of funds consisting of members'capital subscriptions (quotas) on the condition that theborrower undertake economic adjustment and reformpolicies to address its balance of payments difficulties.This financing is extended under a variety of policiesand facilities designed to address specific balance ofpayments problems (see Table 4.1). Interest is chargedon the loans at market-related rates and with repay-ment periods that vary depending on the lending policyor facility.

Concessional Financing. The IMF lends at a very lowinterest rate to poor countries to help them addresstheir balance of payments difficulties by restructuringtheir economies to promote growth and reducepoverty. The IMF also provides assistance on a grant(no-charge) basis to heavily indebted poor countries tohelp them achieve sustainable external debt positions.The principal for concessional loans is funded primarilyby bilateral lenders to the I M F at market-based rates.Resources to subsidize the rate charged to borrowers,and grants for debt relief, are financed through volun-tary bilateral contributions by members and incomefrom the IMF's own resources.

SDRs. The I M F can also create internationalreserve assets by allocating special drawing rights(SDRs) to members, which can be used to obtain for-eign exchange from other members and to makepayments to the I M F (21.4 billion SDRs have beenallocated). The S D R also serves as the IMF's unit ofaccount and its value is based on a basket of majorinternational currencies. The S D R interest rate isbased on market interest rates for the currencies in thevaluation basket and serves as the basis for other I M Finterest rates.

To promote better understanding of IMF finances,the IMF regularly releases to the public a wide varietyof timely and comprehensive data (see Box 6.1).

6


F I N A N C I A L O P E R A T I O N S A N D P O L I C I E S I N F Y 2 0 0 2

Regular Financing ActivitiesThe I M F conducts its regular lend-ing activity through the GeneralResources Account (GRA), whichholds the quota subscriptions ofmembers (see Box 6.2). The bulk ofthe financing is provided underStand-By Arrangements, whichaddress members' balance of pay-ments difficulties of a short-term,cyclical nature, and under theExtended Fund Facility (EFF),which focuses on external paymentsdifficulties arising from longer-termstructural problems. Loans underStand-By and Extended Arrange-ments can be supplemented withshort-term resources from theSupplemental Reserve Facility (SRF)to assist members experiencing asudden and disruptive loss of capitalmarket access. A l l loans incur inter-est charges and can be subject tosurcharges based on the type andduration of the loan and the amountof I M F credit outstanding. Repay-ment periods also vary by facility.

LendingAugmentations of existing arrange-ments as well as new arrangementsfor Brazil and Turkey—all inamounts larger than usual—con-tributed to a sharp rise in new IMF commitments inFY2002. Total commitments increased to SDR 39.4billion1 in FY2002 from SDR 13.1 billion in FY2001.The IMF approved nine new Stand-By Arrangementsinvolving commitments totaling SDR 26.7 billion, andcommitments to Argentina and Turkey under Stand-By Arrangements already in place were augmented byS D R 12.7 billion. No EFF arrangements wereapproved in FY2002. (See Table 6.1.)

The largest IMF commitments during the yearreflected new Stand-By Arrangements for Brazil andTurkey, including the provision of shorter-term financ-ing under the SRF. In September 2001, a Stand-ByArrangement of SDR 12.1 billion (SDR 10.0 billionunder the SRF) was approved for Brazil in support ofthe government's economic and financial programthrough December 2002. In February 2002, the IMFapproved a three-year, SDR 12.8 billion Stand-ByArrangement for Turkey to support the government's

Box 6.2The I M F ' s Financing MechanismThe IMF's lending is financed from thepaid-in capital subscribed by membercountries. Each country is assigned aquota that determines its maximumfinancial commitment to the IMF. Aportion of the quota is provided in theform of reserve assets (foreign curren-cies acceptable to the I M F or SDRs)and the remainder in the member's owncurrency. The I M F extends financing byproviding reserve assets to the borrowerfrom the reserve asset subscriptions ofmembers or by calling on countries thatare considered financially strong toexchange their currency subscriptionsfor reserve assets (see Box 6.3).

The loan is disbursed or drawn by theborrower "purchasing" the reserveassets from the IMF with its own cur-rency. Repayment of the loan isachieved by the borrower "repurchas-ing" its currency from the I M F withreserve assets. The I M F levies a basicrate of interest (charges) on loans basedon the S D R interest rate (see Box 6.6)and imposes surcharges depending onthe type and duration of the loan andthe level of credit outstanding.

A country that provides reserveassets to the I M F as part of its quota

subscription or through the use of itscurrency receives a liquid claim on theI M F (reserve position) that can beencashed on demand to obtain reserveassets to meet a balance of paymentsfinancing need. These claims earninterest (remuneration) based on theS D R interest rate and are consideredby members as part of their interna-tional reserve assets. As IMF loans arerepaid (repurchased), the amount ofSDRs and the currencies of creditormembers is restored and the creditorclaim on the I M F is extinguished.

The "purchase/repurchase"approach of I M F lending affects thecomposition, but not the overall size,of the IMF's resources. An increase inloans outstanding will reduce theIMF's holdings of reserve assets andthe currencies of members that arefinancially strong and, at the sametime, increase the IMF's holdings ofthe currencies of countries that areborrowing from the I M F . Theamount of the IMF's holdings of

preserve assets and the currencies offinancially strong countries determinesthe IMF's lending capacity (liquidity)(see Box 6.4).

1As of April 30, 2002, SDR 1 = US$1.267706.

economic program, which replaced the previousarrangement approved in December 1999.

In a continuation of recent trends, a growing vol-ume of IMF financing commitments are being treatedas precautionary, with borrowers indicating that theydo not intend to draw on the funds committed to themby the IMF. Increased use of precautionary Stand-ByArrangements, as well as other factors such as uncom-pleted reviews and interrupted programs, resulted indrawings being made under only 16 of the 34 Stand-By and Extended Arrangements in place during theyear (see Appendix II, Table II.7). At the end of April2002, undrawn balances under the 17 Stand-By andExtended Arrangements still in effect amounted toSDR 26.9 billion, about half of the total amount com-mitted (SDR 51.7 billion).

No commitments were made under the IMF'spolicy for emergency assistance, the CompensatoryFinancing Facility (CFF), or Contingent Credit Lines(CCLs) during the year.

During the financial year, the I M F disbursedS D R 29.1 billion in loans from its GRA. The amountof new credit exceeded the repayment of loans

A N N U A L R E P O R T 2 0 0 2 57


C H A P T E R 6

Table 6.1IMF Financial Assistance Approved in FY2002

Member

ArgentinaArmeniaAzerbaijanBrazil2

BulgariaCape VerdeChadCote d'IvoireEthiopiaGhanaGuatemalaGuineaKyrgyz RepublicLithuaniaMaliMongoliaPakistanPeruRomaniaSierra LeoneTurkey

UruguayYugoslavia, Fed. Rep. of

Type ofFinancial Arrangement

Augmentation of Stand-ByThree-year PRGFThree-year PRGF15-month Stand-ByTwo-year Stand-ByThree-year PRGFAugmentation of PRGFThree-year PRGFAugmentation of PRGFAugmentation of PRGFOne-year Stand-ByThree-year PRGFThree-year PRGF18-month Stand-ByAugmentation of PRGFThree-year PRGFThree-year PRGFTwo-year Stand-By18-month Stand-ByThree-year PRGFAugmentation of Stand-ByThree-year Stand-ByTwo-year Stand-ByOne-year Stand-By

Date of Approval

September 7, 2001May 23, 2001July 6, 2001September 14, 2001February 27, 2002April 10, 2002January 16, 2002March 29, 2002March 18, 2002June 27, 2001April 1, 2002May 2, 2001December 6, 2001August 30, 2001July 26, 2001September 28, 2001December 6, 2001February 1, 2002October 31, 2001September 26, 2001May 15, 2001February 4, 2002April 1, 2002June 11, 2001

Amount Approved1

(in millions of SDRs)

6,351.369.080.5

12,144.4240.0

8.65.6

292.713.037.084.164.373.486.5

4.728.5

1,033.7255.0300.0130.8

6,362.412,821.2

594.1200.0

1For augmentations, only the amount of the increase is shown.2Amount agreed includes commitment and amounts remaining available under the SRF.

extended in earlier years. Total repayments were SDR19.2 billion, including advance repayments by Brazil(SDR 3.3 billion), Korea (SDR 1.9 billion), Russia(SDR 1.9 billion), and Turkey (SDR 4.5 billion).Consequently, I M F credit outstanding at the end ofthe financial year amounted to S D R 52.1 billion, SDR9.9 billion higher than a year earlier but some S D R8.5 billion below the peak attained during the recentfinancial crises.

A review of IMF facilities completed in FY2001resulted in a number of important measures affectingthe duration and size of future IMF financing underStand-By and Extended Arrangements (see Chapter 4).The new policies on time-based early repurchase expec-tations and the level-based interest surcharge apply todrawings made after the date of the decision by theExecutive Board (November 28, 2000). As of April 30,2002, financing amounting to SDR 21.9 billion wassubject to early repurchase expectations under thesepolicies; at that time, SDR 11.6 billion was subject tothe level-based surcharge.

Resources and LiquidityThe IMF's lending is financed primarily from thefully paid-in capital (quotas) subscribed by member

countries in the form of reserve assets and currencies(see Box 6.2).2 Only a portion of the resources arereadily available to finance new lending, however,because of earlier commitments and IMF policies thatlimit use of the currencies to those of members thatare financially strong (see Boxes 6.3 and 6.4). Generalreviews of IMF quotas are conducted at five-yearintervals during which adjustments are proposed inthe overall size and distribution of quotas to reflectdevelopments in the world economy. A member'squota can also be adjusted separately from a generalreview to take account of major developments. TheI M F can also borrow to supplement its quotaresources.

The IMF's financial position weakened somewhatduring the financial year but remained comfortable. OnApril 30, 2002, the IMF had SDR 64.7 billion in netuncommitted usable resources, compared withSDR 78.7 billion a year earlier. As noted above, a num-ber of new, large Stand-By Arrangements and theaugmentation of several existing arrangements resulted

2Quotas also determine a country's voting power in the IMF, itsaccess to IMF financing, and its share in SDR allocations.

58 A N N U A L R E P O R T 2 0 0 2



in a decline of available resources.However, this effect was partly offsetby expirations of some arrangementswith undrawn balances and by someadvance repayments (including byBrazil, Korea, and Russia), both ofwhich increased resources availablefor new lending. Similarly, theamount of usable resources increasedbecause two countries (Cyprus andKorea) were considered sufficientlystrong for their currencies to benewly included on the transfer sideof the IMF's financial transactionsplan.

Quota DevelopmentsA number of quota-related develop-ments took place during the financialyear.• The Twelfth General Review of

Quotas began in December 2001with the formation of a Commit-tee of the Whole to consider thepossible need to increase quotas.As part of this process, the Execu-tive Board held an informalseminar on conceptual issuesinvolved in assessing the adequacyof the IMF's resource base (Box6.5). Directors noted that theTwelfth Review is being conducted in a context ofincreased global economic and financial integration,including access by a growing number of countriesto private capital markets and greater vulnerability toeconomic shocks and financial market volatility. Atthe same time, many countries have improved eco-nomic policy and performance, leading to a decreasein vulnerability. There was broad recognition thatthese diverse factors, as well as the IMF's efforts toadapt its policies to deal with the challenges of glob-alization, would have important implications for thefuture demand for IMF financing. However, therewas no converging view in the Executive Board onthe extent to which, on balance, the various devel-opments could affect the required size of the IMF'sresource base.

• The Executive Board also held further discussionson possible revisions of the formulas used in deter-mining members' quotas. Directors expressed awide range of views on the structure and content ofalternative quota formulas. They agreed that furtherwork was needed to develop quota formulas thatmore fully reflected members' roles in the worldeconomy, though many noted that this was a diffi-cult task because quotas performed a variety of

Box 6.3Financial Transactions PlanThe IMF extends loans by providingreserve assets from its own holdingsand by calling on financially strongcountries to exchange the IMF's hold-ings of their currencies for reserveassets. The members that participate inthe financing of IMF transactions inforeign exchange are selected by theExecutive Board based on an assess-ment of each country's financialcapacity. These assessments are ulti-mately a matter of judgment and takeinto account recent and prospectivedevelopments in the balance of pay-ments and reserves, trends in exchangerates, and the size and duration ofexternal debt obligations.

The amounts transferred andreceived by these members are man-aged to ensure that their creditorpositions in the I M F remain broadlythe same in relation to their quota,the key measure of each member'srights and obligations in the IMF .This is achieved in the framework ofan indicative quarterly plan for finan-cial transactions. The I MF publisheson its website the outcome of thefinancial transactions plan for thequarter ending three months prior topublication. As of April 30, 2002,the 40 members listed below wereparticipating in financing I M Ftransactions.

AustraliaAustriaBelgiumBotswanaBrunei DarussalamCanadaChileChinaCyprusCzech Republic

DenmarkFinlandFranceGermanyGreeceHungaryIrelandIsraelItalyJapan

KoreaKuwaitLuxembourgNetherlandsNew ZealandNorwayOmanPolandPortugalQatar

Saudi ArabiaSingaporeSloveniaSpainSwedenSwitzerlandTrinidad and TobagoUnited Arab EmiratesUnited KingdomUnited States

roles. Most Directors agreed that any new quotaformula should be simple and transparent, and theygenerally endorsed the use in quota formulas ofvariables that had traditionally been considered toreflect the IMF's financial functions (that is, G D P ,openness, variability, and, possibly, reserves). How-ever, Directors noted that these variables needed tobe modernized to take account of changes in theworld economy—in particular, the large and grow-ing role of international capital flows. MostDirectors further recognized that issues related tothe governance of the IMF were unlikely to beresolved solely through revisions of the quota for-mulas, although revised formulas that commandedwide support could contribute to the gradualadjustment of quotas. At the same time, manyDirectors considered that, apart from the choice offormula, it was important to address without delaythe situation of countries whose actual quotas weresignificantly below their calculated quotas. ManyDirectors underscored the desirability of ensuringthe proper representation in the IMF's decisionmaking of developing countries, especially theFund's poorest member countries, particularly thosein Africa.

A N N U A L R E P O R T 2 0 0 2 59


C H A P T E R 6

Box 6.4I M F Financial Resources and LiquidityWhile the IMF's lending and othertransactions are financed primarilyfrom the quota subscriptions ofmember countries, only a portion ofthese funds is available to finance newlending. The IMF's usable resourcesconsist of its holdings of the currenciesof financially strong members includedin the financial transactions plan(Box 6.2) and SDRs. Moreover, someof these usable resources will havebeen committed under existing loansand must be retained for workingbalances. Thus, the IMF's net uncom-mitted usable resources represent thefunds available for new lending and tomeet requests for encashment of credi-tor liquid claims (reserve positions).

The IMF's usable resources are replen-ished as borrowers repay outstandingloans.

As of April 30, 2002, the IMF'snet uncommitted usable resourcesamounted to SDR 64.7 billion, about30 percent of total quotas (seeSchedule 2 to the financial statementsof the General Resources Account inAppendix IX). Detailed informationon the IMF's liquidity position ispublished monthly on the IMF'swebsite.

The IMF's two standing borrowingarrangements—-the New Arrangementsto Borrow (NAB) and the GeneralArrangements to Borrow (GAB)—canprovide up to SDR 34 billion in sup-

plementary resources in specified cir-cumstances. Any such borrowingincreases the creditor members' reservepositions and thus adds to the IMF'sliquid liabilities.

The IMF must maintain sufficientliquidity to meet current and prospec-tive financing needs. A liquidity ratio,which is the ratio of the IMF's netuncommitted usable resources to itsliquid liabilities, has traditionally beenused to assess the IMF's liquidity posi-tion. As of April 30, 2002, the liquidityratio was 117 percent, compared with168 percent a year before but morethan three and a half times the lowpoint prior to the 1999 increase inIMF quotas. (Figure 6.1).

Figure 6.1IMF Liquidity Ratio, April 1993-April 2002(In percent)

• As of April 30, 2002, 174 member countriesaccounting for more than 99 percent of total quotasproposed in 1998 under the Eleventh GeneralReview of Quotas had consented to, and paid for,their quota increases. Three member countries eligi-ble to consent to the proposed increases in theirquotas had not done so by the end of the financialyear, and six, countries were ineligible to consent totheir proposed increases because they were in arrearsto the IMF. On January 31, 2002, the ExecutiveBoard approved an extension of the period for con-sent to, and payment of, quota increases under theEleventh Review until July 31, 2002. At the close of

the financial year, total quotas amounted to aboutSDR 212.4 billion.

Concessional FinancingThe IMF provides concessional assistance to help itspoorest members increase their economic growth andreduce poverty through the Poverty Reduction andGrowth Facility (PRGF) and in the context of the Ini-tiative for Heavily Indebted Poor Countries (HIPCs).In FY2002, the mobilization of loan and grantresources for the continuation of the PRGF in theperiod 2002-2005 and the H I P C Initiative was com-pleted. A total of 36 member countries received PRGF

60 A N N U A L R E P O R T 2 0 0 2



financing during FY2002, and 26countries had received financial com-mitments under the enhanced H I P CInitiative by the end of the financialyear.

Poverty Reduction andGrowth FacilityThe objectives of the IMF's conces-sional lending were modified in1999 to include an explicit focus onpoverty reduction in the context of agrowth-oriented economic strategy.The IMF, along with the WorldBank, supports strategies elaboratedby the borrowing country in aPoverty Reduction Strategy Paper(PRSP), which is prepared with theparticipation of civil society andother development partners. Reflect-ing the new objectives andprocedures, the IMF established thePRGF in place of the EnhancedStructural Adjustment Facility(ESAF) to provide financing under arrangements basedon PRSPs. The loan commitment capacity of the PRGFis currently estimated to be about SDR 1.1 billion ayear through 2005.

During FY2002, the Executive Board approvednine new PRGF arrangements (for Armenia,Azerbaijan, Cape Verde, Cote d'Ivoire, Guinea, theKyrgyz Republic, Mongolia, Pakistan, and SierraLeone) with commitments totaling SDR 1.8 billion;in addition, augmentations of existing commitmentstotaling S D R 66 million were approved for Chad,Ethiopia, Ghana, and Mali (Appendix II, Tables II.5and II.7). Total PRGF disbursements during FY2002amounted to S D R 1.0 billion, compared withS D R 0.6 billion in FY 2001. As of end-April 2002,36 member countries' reform programs were supportedby PRGF arrangements, with IMF commitmentstotaling S D R 4.3 billion and undrawn balances ofS D R 2.7 billion.

Financing for the PRGF is provided through trustfunds administered by the IMF—the PRGF Trust andPRGF-HIPC Trust—that are separate from the IMF'squota-based resources. Contributions from a broadspectrum of the IMF's membership and the IMF itselfconstitute the financing of both trusts. The PRGFTrust borrows resources at market or below-marketinterest rates from loan providers—central banks, gov-ernments, and government institutions—and lendsthem to PRGF-eligible member countries at an annualinterest rate of 0.5 percent. The PRGF Trust receivesgrant contributions to subsidize the rate of interest onPRGF loans and maintains a Reserve Account as secu-

Box 6.5Twelfth Review of QuotasThe I M F normally conducts generalreviews of members' quotas every fiveyears to assess the adequacy of itsresource base and to provide for adjust-ments of the quotas of individualmembers to reflect changes in their rel-ative positions in the world economy.The Twelfth General Review of Quotasformally began in December 2001 andis scheduled to be completed by Janu-ary 30, 2003.

During the financial year, the Exec-utive Board held a series of discussionsto consider issues related to the sizeand distribution of quotas. A seminarin February 2002 provided an oppor-tunity for a preliminary exchange ofviews on the implications of develop-ments in the world economy and theevolving role of the I M F for the insti-

tution's resource base. A follow-upstaff paper will take into accountthese views and quantify the possiblesize of the I M F under various sce-narios based on new and traditionalindicators.

The Executive Board has also con-sidered possible revisions in theformulas used by the I M F in determin-ing quotas of individual members asrequested by the I M F Board of Gover-nors at the conclusion of the last quotareview. Papers considered by the Exec-utive Board included a report by agroup of external experts and anaccompanying staff commentary as wellas a staff paper discussing basic consid-erations relating to the choice ofvariables, formula specification, andweights of variables.

rity for loans to the Trust. Subsidy resources in boththe PRGF Trust and the PRGF-HIPC Trust areavailable to subsidize PRGF operations, and the PRGF-H I P C Trust also provides resources for H I P C Initiativeassistance.3

During FY2002, 10 lenders (Table 6.2) madeSDR 4.4 billion in new loan resources available tofinance future PRGF operations. Consequently, theborrowing limit for loan resources of the PRGF Trustwas increased from SDR 11.5 billion to SDR 16.0 bil-lion in September 2001.

The framework for the PRGF envisages that com-mitments would be financed through 2005 fromexternal sources. The continuation of concessionallending for the period after 2005 will need to bereassessed closer to that time, but a substantial propor-tion of such lending is expected to be provided fromthe IMF's own resources accumulating in the PRGFTrust Reserve Account. These resources will becomeavailable as PRGF lenders are repaid and the securityprovided by the Reserve Account is no longer needed.

Enhanced HIPC InitiativeThe H I P C Initiative, originally launched by the IMFand World Bank in 1996, was considerably strength-ened in 1999 to provide deeper, faster, and broader

3Amendments to the PRGF Trust and the PRGF-HIPC Trustapproved in September 2001 provide for the transfer of subsidyresources from the PRGF-HIPC Trust to the Subsidy Account of thePRGF Trust to subsidize the continuation of PRGF lending after sub-sidy resources currently available in the PRGF Trust are fully utilized.


C H A P T E R 6

debt relief for the world's heavily indebted poor coun-tries. By end-April 2002, the IMF and the World Bankhad brought 26 HIPC-eligible members to their deci-sion points under the enhanced Initiative and 1 (Coted'Ivoire) under the original Initiative.

The IMF provides H I P C Initiative assistance in theform of grants or interest-free loans that are used toservice part of member countries' debt to the IMF. Asof end-April 2002, the IMF had committed SDR 1.6billion in H I P C Initiative grants to 27 eligible coun-tries (Benin, Bolivia, Burkina Faso, Cameroon, Chad,

Table 6.3Commitments and Disbursements of H I P C Initiative Assistance,as of Apr i l 30, 2002(In millions of SDRs)

Member

BeninBoliviaBurkina FasoCameroonChadCote d'Ivoire2

EthiopiaGambia, TheGhanaGuineaGuinea-BissauGuyanaHondurasMadagascar

Amount1

Committed Disbursed

18.465.544.028.514.316.726.9

1.890.124.29.2

56.222.716.6

7.465.533.0

2.52.9—

4.00.19.92.40.5

31.74.52.1

Member

MalawiMaliMauritaniaMozambiqueNicaraguaNigerRwandaSao Tome and

PrincipeSenegalSierra LeoneTanzaniaUgandaZambia

Twenty-seven members, of which 26 are under the enhancedHIPC framework2

Amount1

Committed

23.144.434.8

108.063.021.633.8

—33.898.596.4

121.7468.8

1,582.9

Disbursed

2.317.216.9

108.0—

1.59.1

—8.2

23.696.4

121.7117.2

688.7

1Amounts may include interest on assistance committed but not disbursed during the interimperiod.

2Cote d'Ivoire reached its decision point under the original HIPC Initiative.

Cote d'Ivoire, Ethiopia, The Gambia, Ghana, Guinea,Guinea-Bissau, Guyana, Honduras, Madagascar,Malawi, Mali , Mauritania, Mozambique, Nicaragua,Niger, Rwanda, Sao Tome and Principe, Senegal, SierraLeone, Tanzania, Uganda, and Zambia). Four mem-bers (Bolivia, Burkina Faso, Mozambique, andTanzania) reached their completion points under theenhanced H I P C Initiative during FY2002. Under theenhanced Initiative, a portion of the resources commit-ted at the decision point can be disbursed before acountry reaches its completion point. Such interimassistance from the IMF may be up to 20 percentannually and 60 percent in total (25 percent and 75percent, respectively, in exceptional circumstances) ofthe committed amount of H I P C assistance. As of end-April 2002, total disbursements of H I P C Initiativeassistance by the IMF amounted to SDR 688.7 million(Table 6.3).

Financing of the HIPC Initiative andPRGF SubsidiesThe financing of the IMF's participation in theenhanced H I P C Initiative and the subsidy require-ments of the PRGF are administered through thePRGF-HIPC Trust and the PRGF Trust, respectively.The total resources required for these purposes are esti-mated at SDR 7.5 billion, of which H I P C Initiativeassistance is estimated to amount to about SDR 2.2 bil-lion and the cost of subsidies for PRGF lending is

estimated at SDR 5.3 billion.These resource requirements are

expected to be fully met by bilateralcontributions from member coun-tries and by the IMF.

Bilateral pledges for the PRGF-H I P C Trust and the SubsidyAccount of the PRGF Trust frommember countries amount to aboutSDR 3.8 billion and come from awide cross-section of the IMF'smembership, demonstrating thebroad support for the H I P C andPRGF initiatives. Altogether, 93countries have pledged support: 27advanced countries, 57 developingcountries, and 9 countries in transi-tion. As of end-April 2002, totaleffective bilateral contributionsamounted to SDR 3.7 billion, ofwhich contributions to the PRGF-H I P C Trust amounted to SDR 1.2billion (Appendix II, Table II.11).

The IMF's own contributionsamount to SDR 2.6 billion, of whichthe contributions to the PRGF-H I P C Trust amount to SDR 2.2

62 A N N U A L R E P O R T 2 0 0 2

Table 6.2New PRGF Loan Resources Committed byLenders, as of February 21, 2002(In millions of SDRs)

BelgiumChinaEgyptFranceGermanyItalyJapanNetherlandsSpainSwitzerlandTotal

15010056

1,0001,000

550785200300250

4,390



billion. The bulk of this contribution—SDR 1.76 bil-lion—comes from investment income on the netproceeds generated from off-market transactions of12.9 million troy ounces of gold. The off-market trans-actions were completed in April 2000, generating netproceeds of SDR 2,226 million. These funds have beenplaced in the Special Disbursement Account (SDA) andinvested for the benefit of the H I P C Initiative.

The IMF also contributes about SDR 0.8 billion bymeans of a one-time transfer from the SDA and by for-going compensation from the PRGF Reserve Accountfor the administrative expenses related to PRGF opera-tions for the financial years 1998 through 2004, withthe equivalent amount being instead transferred to thePRGF-HIPC Trust. In addition, part of the interestsurcharge on financing provided in 1998 and 1999under the Supplemental Reserve Facility related to acti-vation of the New Arrangements to Borrow was alsotransferred to the PRGF-HIPC Trust. The contribu-tions by the IMF's membership and the IMF itself areexpected to be supplemented by investment incomeearned on such contributions.

Investment of SDA, PRGF, and PRGF-HIPCResourcesIn March 2000, the IMF initiated a new investmentstrategy for SDR 6.4 billion in resources supporting thePRGF and H I P C initiatives with the objective of sup-plementing returns over time while maintainingprudent limits on risk. Supplemental income will beused to help meet the financial requirements of thePRGF and H I P C initiatives.

Under the new approach, the maturity of invest-ments was lengthened by shifting the bulk of assetspreviously invested in short-term SDR-denominateddeposits with the Bank for International Settlements(BIS) to portfolios of bonds and other medium-terminstruments structured to reflect the currency composi-tion of the S D R basket. Remaining short-term depositsare held at a level sufficient to meet liquidity require-ments and to conform with the administrativearrangements agreed with certain contributors.

The performance benchmark for the portfolio ofbonds and medium-term instruments is a customizedindex comprising one- to three-year government bondindices for Germany, Japan, the United Kingdom, andthe United States, with each market weighted to reflectthe currency composition of the SDR basket. Regularportfolio rebalancing ensures that the currency compo-sition of the investment portfolio matches as closely aspracticable the currency composition of the SDR bas-ket. Following a temporary shortening of the averagematurity of the portfolio in mid-January 2002, thebenchmark was also changed temporarily to a cus-tomized index based on three-month deposit rates andzero-one year government bonds. The new strategy is

Table 6.4Contributions to Subsidize Post-ConflictEmergency Assistance, as of Apr i l 30, 2002(In millions of SDRs)

Contributor

BelgiumNetherlandsSwedenSwitzerlandUnited Kingdom

Total

ContributionPledged

1.01.60.80.82.87.0

ContributionReceived

—0.8—

0.61.4

SubsidyDisbursed

—_

0.2

0.60.8

implemented on the IMF's behalf by the BIS, theWorld Bank, and three private investment managers.

In the 24 months since its inception, the new invest-ment strategy added 392 basis points (on an annualizedbasis, net of fees) to returns over the previous approachof investing in SDR-denominated deposits and gener-ated supplemental income of SDR 250 million insupport of PRGF and PRGF-HIPC operations.

Post-Conflict Emergency AssistanceThe I M F provides emergency assistance to countriesthat are emerging from conflict through loans subjectto the IMF's basic rate of charge. A n administeredaccount was established on May 4, 2001, to acceptcontributions by bilateral donors that would enablethe IMF to provide such assistance at a concessionalrate of charge of 0.5 percent for PRGF-eligible mem-bers.4 As of April 30, 2002, Sweden and the UnitedKingdom had provided grants to the account, and Bel-gium, the Netherlands, and Switzerland had alsocommitted to providing such resources. Total pledgedgrant contributions amounted to about SDR 7 mil-lion, of which SDR 1.4 million had been paid.Disbursements totaled SDR 0.8 million to subsidizethe rate of charge on post-conflict emergency assis-tance for six countries (Albania, the Republic ofCongo, Guinea-Bissau, Rwanda, Sierra Leone, andTajikistan) (Table 6.4).

Special Drawing RightsThe SDR is a reserve asset created by the IMF in 1969and allocated to members in proportion to their IMF

4If, in any quarter, the assets of the account are insufficient to sub-sidize the charge of all subsidy beneficiaries to 1/2 of 1 percent on anannual basis, the subsidy to each beneficiary will be prorated to bringthe effective rate of charge paid after subsidization to the closest com-mon percentage to 1/2 of 1 percent.


C H A P T E R 6

Box 6.6SDR Valuation and Interest RateValuation. The value of the SDR isbased on the weighted average of thevalues of a basket of major internationalcurrencies. The method of valuation isreviewed at five-yearly intervals. The lat-est review was completed in FY2001,and the Executive Board decided on anumber of changes to take account ofthe introduction of the euro as the com-mon currency for a number of Europeancountries and the growing role of inter-national financial markets. Currenciesincluded in the valuation basket areamong the most widely used in interna-tional transactions and widely traded inthe principal foreign exchange markets.Currencies selected for inclusion in theSDR basket for the period 2001-05 arethe U.S. dollar, the euro, the Japaneseyen, and the pound sterling (Table 6.5).

Table 6.5SDR Valuation(As of' April 30, 2002)

Interest rate. The I M F also reviewedthe method for determining the S D Rinterest rate in FY2001 and decided tocontinue to set the weekly interest rateon the basis of a weighted average ofinterest rates on short-term instrumentsin the markets of the currenciesincluded in the S D R valuation basket.However, the financial instrumentsused to determine the representativeinterest rate for the euro and the Japan-ese yen were modified to reflectfinancial market developments. TheS D R interest rate evolved during theyear in line with developments in themajor money markets, declining duringthe first three quarters of the year andstabilizing thereafter, averaging2.79 percent over the course ofFY2002 (see Figure 6.2).

Currency

EuroJapanese yenPound sterlingU.S. dollar

Memorandum:SDR 1 = US$1.267706US$1 = SDR 0.788826

Amount ofCurrency Units

0.426021.0000

0.09840.5770

ExchangeRate1

0.90110128.45000

1.456801.00000

U.S. DollarEquivalent

0.3838690.1634880.1433490.5770001.267706

1Exchange rates in terms of U.S. dollars per currency unit except for the Japanese yen, which is cur-rency units per U.S. dollar.

quotas to meet a long-term global need to supplementexisting reserve assets. A member may use SDRs toobtain foreign exchange reserves from other membersand to make payments to the IMF. Such use does not

constitute a loan; members are allo-cated SDRs unconditionally and mayuse them to meet a balance of pay-ments financing need withoutundertaking economic policy mea-sures or repayment obligations.However, a member that makes netuse of its allocated SDRs pays theSDR interest rate, while a memberthat acquires SDRs in excess of itsallocation receives interest at theSDR rate. A total of SDR 21.4 bil-lion has been allocated to members,including SDR 9.3 billion in1970-72 and SDR 12.1 billion in1978-81. The value of the SDR isbased on the weighted average of thevalues of a basket of major interna-tional currencies and the SDRinterest rate is an average of interestrates on short-term instruments inthe markets of the currencies in thevaluation basket (see Box 6.6). TheSDR also serves as the unit ofaccount for the IMF, and the SDRinterest rate provides the basis forcalculating the interest charges onregular IMF financing and the inter-est rate paid to members that arecreditors to the IMF.• General allocations of SDRs. Deci-

sions on general allocations aremade in the context of five-yearbasic periods and require a findingthat an allocation would meet along-term global need to supple-ment existing reserve assets. Adecision to allocate SDRs requiresan 85 percent majority of the totalvoting power. During the finan-cial year, the IMF ExecutiveBoard considered whether toundertake a general allocation ofSDRs in light of current andprospective conditions in theworld economy. A number ofDirectors argued that the constel-lation of factors relevant toconsideration of an SDR alloca-tion was stronger today than ithad been for many years, and inthis regard they pointed to the

difficulty and high cost of obtaining reservesthrough borrowing in more risk-averse capital mar-kets. Other Directors emphasized that the globalneed for reserve supplementation had to be consid-

64 A N N U A L R E P O R T 2 0 0 2

Figure 6.2SDR Interest Rates, 1992-2002(In percent)



ered in a medium-term perspective. According tothis view, current projections for the evolution ofthe world economy over the five years of the nextbasic period did not support the case for an SDRallocation. Consequently, the Managing Directorreported to the IMF Board of Governors that therewas not sufficiently broad support to make a spe-cific proposal for an S D R allocation during theeighth basic period. However, in view of the inter-est in further consideration of the issues, theManaging Director indicated the intention to bringthe issue of a general allocation of SDRs beforethe Executive Board for further discussion whenappropriate.

• Special one-time allocation. In September 1997, theIMF Board of Governors proposed an amendmentto the Articles of Agreement to allow a special one-time allocation of SDRs to correct for the fact thatmore than one-fifth of the IMF membership hasnever received an SDR allocation. The special alloca-tion of SDRs would enable all members of the I M Fto participate in the SDR system on an equitablebasis and would double cumulative SDR allocationsto SDR 42.87 billion. The proposal will becomeeffective when three-fifths of the IMF membership(110 members) having 85 percent of the total vot-ing power have accepted the proposal. As of April30, 2002, 118 members having 73 percent of thetotal voting power had agreed and only the accep-tance by the United States was required toimplement the proposal.

• SDR operations and transactions. A l l SDR transac-tions are conducted through the SDR Department.SDRs are held largely by member countries with thebalance held in the IMF's G R A and by official enti-ties prescribed by the IMF to hold SDRs. Prescribedholders do not receive SDR allocations but canacquire and use SDRs in operations and transactionswith IMF members and with other prescribed hold-ers under the same terms and conditions as IMFmembers.5 Transactions in SDRs are facilitated by13 voluntary arrangements under which the partiesstand ready to buy or sell SDRs for currencies thatare readily usable in international transactions, pro-vided that their own SDR holdings remain within

5There are 16 prescribed holders of SDRs: the African Develop-ment Bank, African Development Fund, Arab Monetary Fund, AsianDevelopment Bank, Bank of Central African States, Bank for Inter-national Settlements, Central Bank of West African States, EastAfrican Development Bank, Eastern Caribbean Central Bank, Euro-pean Central Bank, International Bank for Reconstruction andDevelopment, International Development Association, InternationalFund for Agricultural Development, Islamic Development Bank,Latin American Reserve Fund, and Nordic Investment Bank. TheEuropean Central Bank became the latest prescribed holder onNovember 15, 2000.

certain limits. These arrangements have helpedensure the liquidity of the SDR system.6The total level of transfers of SDRs continued to

decrease in FY2002—to SDR 14.0 billion, comparedwith SDR 18.7 billion in the previous year and thepeak of SDR 49.1 billion in FY1999, when the volumeof SDR transactions increased significantly because ofpayments for the quota increase (see Table 6.6). Byend-FY2002, the IMF's own holdings of SDRs, whichhad risen sharply as a result of payments for quota sub-scriptions in 1999, had fallen to SDR 1.5 billion fromSDR 2.4 billion a year earlier, in the targeted range ofSDR 1.0-1.5 billion in which the IMF seeks to main-tain its SDR holdings. SDRs held by prescribed holdersamounted to SDR 0.4 billion. Consequently, SDRholdings by participants increased to SDR 19.6 billionfrom SDR 18.7 billion in FY 2001. SDR holdings ofthe industrial and net creditor countries relative to theirnet cumulative allocation increased from a year earlier.This increase was mainly due to large interest (remu-neration) payments made to those members. SDRholdings of nonindustrial members increased to56.9 percent of their net cumulative allocations from54.6 percent a year earlier.

Income, Charges, Remuneration, andBurden SharingThe IMF, like other financial institutions, earns incomefrom interest charges and fees levied on its loans anduses the income to meet funding costs and pay foradministrative expenses. The IMF's reliance on capitalsubscriptions and internally generated resources pro-vide some flexibility in setting the basic rate of charge.However, the IMF also needs to ensure that it providescreditors with a competitive rate of interest on theirIMF claims. As an additional safeguard, the IMF's Arti-cles of Agreement set limits on the interest rate paid tocreditors in relation to the SDR interest rate.

The basic rate of charge on regular lending is deter-mined at the beginning of the financial year as aproportion of the SDR interest rate to achieve anagreed net income target for the year. This rate is set tocover the cost of funds and administrative expenses aswell as add to the IMF's reserves. The specific propor-tion is based on projections for income and expensesfor the year and can be adjusted at midyear in light ofactual net income and if income for the year as a wholeis expected to deviate significantly from the projections.At the end of the year, any income in excess of the tar-

6Under the designation mechanism, participants whose balance ofpayments and reserve positions are deemed sufficiently strong may beobliged, when designated by the IMF, to provide freely usable cur-rencies in exchange for SDRs up to specified amounts. Owing to theexistence of voluntary arrangements, the designation mechanism hasnot been used since 1987.

A N N U A L R E P O R T 2 0 0 2 65


C H A P T E R 6

Table 6.6Transfers of SDRs(In millions of SDRs)

Financial Years Ended April 30

1Transactions by agreement are transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarilyexchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF.

2Operations involving prescribed SDR holders. A prescribed SDR holder is a nonparticipant in the SDR Department that has been prescribed by theIMF as a holder of SDRs.

3Operations in SDRs between members and the IMF that are conducted through the intermediary of a prescribed holder are referred to as "IMF-relatedoperations." The IMF has adopted a number of decisions to prescribe SDR operations under the Trust Fund, the SFF Subsidy Account, the SAF, theESAF, the PRGF, and the HIPC Initiative.

get is refunded to the members that paid interestcharges during the year and shortfalls are made up inthe following year.

The IMF imposes level-based surcharges on creditextended after November 28, 2000, to discourageunduly large use of credit in the credit tranches andunder Extended Fund Arrangements. The IMF alsoimposes surcharges on shorter-term loans under theSRF and C C L that vary according to the length of timecredit is outstanding. Income derived from surchargesis placed in the IMF's reserves and is not taken intoaccount in determining the income target for the year.

The IMF also receives income from borrowers in theform of service charges, commitment fees, and specialcharges. A one-time service charge of 0.5 percent is

levied on each loan disbursement from the GeneralResources Account. A refundable commitment fee ischarged on Stand-By and Extended Fund Facility cred-its, payable at the beginning of each 12-month period,on the amounts that may be drawn during that period,including amounts available under the SRF or C C L .The fee is 0.25 percent on amounts committed up to100 percent of quota and 0.10 percent for amountsexceeding 100 percent of quota. The commitment feeis refunded when credit is used in proportion to thedrawings made. The IMF also levies special charges onoverdue principal payments and charges that are over-due by less than six months.

The IMF pays interest (remuneration) to creditorson their IMF claims (reserve positions) based on the

66 A N N U A L R E P O R T 2 0 0 2

Transfers among participants andprescribed holders

Transactions by agreement1

Prescribed operations2

IMF-related operations3

Net interest on SDRsTotal

Transfers from participants toGeneral Resources Account

RepurchasesChargesQuota paymentsInterest received on General Resources

Account holdingsAssessments

TotalTransfers from General Resources Account

to participants and prescribed holdersPurchasesRepayments of IMF borrowingsInterest on IMF borrowingsIn exchange for other members' currencies-

Acquisitions to pay chargesRemunerationOther

TotalTotal transfersGeneral Resources Account holdings

at end of period

1994

3,122406436121

4,085

6421,425

71

3364

2,478

2,676300162

166958108

4,37010,933

6,038

1995

8,987124301174

9,586

1,1811,386

24

2624

2,857

5,970862

97

99815

517,894

20,336

1,001

1996

8,9311,951

704319

11,905

5,5721,985

70

534

7,683

6,460—

491,092

2597,859

27,448

825

1997

7,41188

606268

8,372

4,3641,616

—

514

6,035

4,060—

2241,055

275,366

19,773

1,494

1998

8,56786

901284

9,839

2,9181,877

—

444

4,844

4,243—

201,220

905,574

20,256

764

1999

13,8174,577

756289

19,439

4,7612,8068,644

353

16,249

9,5221,429

46

5451,826

7413,44249,130

3,572

2000

6,639293684214

7,831

3,8262,600

528

1383

7,094

3,592—18

1,5771,7471,0087,942

22,867

2,724

2001

5,046544922302

6,814

3,1992,417

65

1182

5,800

3,166—

1,1071,783

316,087

18,702

2,437

2002

3,669290866228

5,053

1,6312,304

—

562

3,993

2,361—

1,1301,361

934,945

13,991

1,485



SDR interest rate. The basic rate of remuneration iscurrently set at 100 percent of the SDR interest rate(the maximum permitted), but the IMF's charterallows it to be set as low as 80 percent of the SDRinterest rate (the lower limit).

Since 1986, the rates of charge and remunerationhave been subject to a burden-sharing mechanism thatdistributes the cost of overdue financial obligationsbetween creditor and debtor members. Loss of incomefrom unpaid interest charges overdue for six monthsor more is recovered through upward adjustments tothe rate of charge and downward adjustments to therate of remuneration. The amounts thus collected arerefunded when the overdue charges are settled. Addi-tional adjustments to the basic rates of charge andremuneration are made to generate resources for aSpecial Contingent Account (SCA-1), which wasestablished specifically to protect the IMF against therisk of loss resulting from overdue obligations.Resources in the SCA-1 are refundable after all arrearshave been eliminated but can be refunded earlier by adecision by the IMF. In FY2002, the combinedadjustment for unpaid interest charges and the alloca-tion to the SCA-1 resulted in an increase to the basicrate of charge of 14 basis points and a reduction in therate of remuneration of 15 basis points. The adjustedrates of charge and remuneration averaged 3.39 per-cent and 2.65 percent, respectively, for the financialyear.

In April 2001, the basic rate of charge for FY2002was set at 117.6 percent of the SDR interest rate toachieve the agreed income target. The IMF's netincome, net of refunds of interest charges (see below),in FY2002 totaled SDR 360 million. This includedincome from surcharges of SDR 314 million, net of theannual expenses of administering the PRGF Trust. Asinitially agreed in FY1998, the IMF was not reim-bursed for the expenses of administering the PRGFTrust in FY2002; instead, an equivalent amount (SDR62 million) was transferred from the PRGF Trustthrough the Special Disbursement Account to thePRGF-HIPC Trust. As agreed at the beginning of thefinancial year, SDR 17 million of net income in excessof the income target was returned to members thatpaid interest charges at the end of FY2002, retroac-tively reducing the FY2002 rate of charge to 116.4percent of the SDR interest rate. In addition, SDR 94million generated through the burden sharing mecha-nism described above was placed in the SCA-1.

Following the retroactive reduction in the rate ofcharge, SDR 360 million was added to the IMF'sreserves, of which SDR 314 million of surchargeincome went to the General Reserve and the remainderto the Special Reserve. Total reserves rose to SDR 3.6billion as of April 30, 2002, from SDR 3.3 billion ayear earlier.

In April 2002, the Executive Board decided to con-tinue the financial mechanism in place and set the basicrate of charge for FY2003 at 128.0 percent of the SDRinterest rate.

Safeguarding IMF Resourcesand Dealing with ArrearsThe IMF's efforts to safeguard its resources werestrengthened in FY2002 by expanding and making per-manent the process of Safeguards Assessmentsintroduced in 2000 to improve the internal control,accounting, reporting, and auditing systems of the cen-tral banks of countries making use of IMF resources.Moreover, the legal and operational framework fordealing with misreporting of information was extendedto include the H I P C Initiative. Finally, the IMF's strat-egy for dealing with arrears was also extended to PRGFloans, and the timeliness of public disclosure of arrearscases was improved.

Safeguards AssessmentsIn FY2002, the IMF continued to intensify efforts tosafeguard its resources by conducting SafeguardsAssessments of borrowing member countries' centralbanks, typically the recipients of IMF disbursements.Safeguards Assessments, which had been introducedin March 2000 on an experimental basis, wereadopted as a permanent IMF policy by the ExecutiveBoard in March 2002 (see Box 6.7). The safeguardspolicy, initiated against the background of severalinstances of misreporting to the IMF and allegationsof misuse of IMF resources, aims at supplementingconditionality, technical assistance, and other meansthat have traditionally ensured the proper use of IMFloans. In particular, Safeguards Assessments aim toprovide reasonable assurance to the IMF that acentral bank's framework of reporting and controlsis adequate to manage resources, including IMFdisbursements.

Safeguards Assessments apply to all countries witharrangements for use of IMF resources approved afterJune 30, 2000. Member countries with arrangementsin effect before June 30, 2000 were subject to anabbreviated assessment that examined only one key ele-ment of the safeguards framework, namely that centralbanks publish annual financial statements that are inde-pendently audited by external auditors in accordancewith internationally accepted standards. Although Safe-guards Assessments do not formally apply to countrieswith Staff Monitored Programs (SMPs), countriesunder an SMP are encouraged to undergo an assess-ment on a voluntary basis, because in many cases theseprograms are followed by a formal arrangement withthe IMF. In FY2002, 49 Safeguards Assessments werecompleted, including those subject to an abbreviatedassessment.

A N N U A L R E P O R T 2 0 0 2 67


C H A P T E R 6

Box 6.7IMF Executive Board Reviews Experience with Safeguards AssessmentsIn March 2002, the Executive Boardreviewed the safeguards framework andthe collective experience with Safe-guards Assessments since theimplementation of the policy in March2000. The Executive Board wasassisted by a panel of eminent externalexperts who independently evaluatedthe effectiveness of the new policy.

The Executive Board, noting thatcentral banks had widely embraced thefindings of Safeguards Assessments,declared the introduction of the safe-guards policy an unqualified success andadopted the safeguards framework as apermanent policy. The review of experi-ence with Safeguards Assessmentsdemonstrated that the policy hadenhanced the IMF's reputation andcredibility as a prudent lender, whilehelping to improve the operations andaccounting procedures of central banks.The findings of Safeguards Assessmentsindicated that significant, but avoidable,risks to IMF resources may have existedin certain cases and the Executive Boardwelcomed the steps that many central

banks had taken to mitigate identifiedvulnerabilities.

Safeguards Assessments haverevealed that, despite improvementsin central banks' safeguards over thepast few years, significant vulnerabilitiesremain in the controls employed by anumber of central banks of borrowingmember countries. The identified vul-nerabilities could lead to possiblemisreporting to the IMF or misuse ofcentral bank resources, including IMFdisbursements. In particular, Safe-guards Assessments revealed that(1) a substantial number of centralbanks' financial statements were notsubject to an independent and externalaudit conducted in accordance withinternationally accepted standards;(2) several central banks had poor con-trols over foreign reserves and datareporting to the I M F ; and (3) a num-ber of central banks had adopted anunclear financial reporting frameworkand inadequate accounting standards.

The review of experience with Safe-guards Assessments resulted in several

enhancements to the policy, includingthe strengthening of internal and exter-nal communications during thesafeguards process and removing thedistinction between Stage One (off-site) and Stage Two (on-site)assessment reports. Also, the coverageof Safeguards Assessments wasextended slightly to cover membercountries that augment an existingIMF arrangement or that have a RightsAccumulation Program. SafeguardsAssessments will continue to be arequirement for all new IMF arrange-ments, even where a previousassessment has been conducted. How-ever, it is expected that the main focusof the safeguards work will shift frominitial Safeguards Assessments to themonitoring of previous assessments.

The staffs and the expert panel'spapers supporting the review by theExecutive Board of experience withSafeguards Assessments, a summary ofthe Executive Board's discussion, andadditional background information areavailable on the IMF website.

Safeguards Assessments follow an established set ofprocedures to ensure consistency in application. Al lcentral banks subject to an assessment provide a stan-dard set of documents to IMF staff members, whoreview the information and communicate as neededwith central bank officials and the external auditors.The review may be supplemented by an on-site visit tothe central bank to obtain or clarify information neces-sary to draw conclusions and make recommendations.Such visits are conducted by IMF staff with possibleparticipation of technical experts drawn from the IMF'smembership. The review also takes into account thefindings and timing of a previous Safeguards Assess-ment, including the results of any follow-upmonitoring.

The outcome of a Safeguards Assessment is a confi-dential report that identifies vulnerabilities, assigns riskratings, and makes recommendations to mitigate theidentified risk. Country authorities, who have theopportunity to comment on all Safeguards Assessmentreports, are expected to implement the safeguards rec-ommendations, possibly under program conditionality.The conclusions and agreed-upon remedial measuresare reported in summary form to the IMF's ExecutiveBoard either when an arrangement is approved or byno later than the first review of the arrangement. The

implementation of safeguards recommendations ismonitored periodically by IMF staff.

MisreportingIn FY2002, the IMF also continued strengthening itslegal and operational framework dealing with misre-porting of information. In February-March 2002, anew framework was established to handle revisions ofinformation on economic and external debt data thatunderlies the IMF's H I P C Initiative decisions. InFebruary, the Board approved an amendment to theH I P C Trust Instrument that provides for the exclusionfrom the stock of a member's external debt in the DebtSustainability Analysis (DSA) of amounts owed to theIMF that are found under the IMF's MisreportingGuidelines to constitute noncomplying purchases/disbursements. In March, the Board approved a frame-work that provides for the amount of debt relief to beadjusted upward or downward (subject to a minimumthreshold) in the event that the DSA used to determinethe amount of assistance committed at the decisionpoint turns out to be incorrect. The framework alsopermits the Board to ask for the return to the PRGF-H I P C Trust Fund of interim assistance disbursed onthe basis of inaccurate information pertaining to themember's track record but not yet used to service debt

68 A N N U A L R E P O R T 2 0 0 2



Table 6.7Arrears to the IMF of Countries with Obligations Overdue by Six Months or More,by Type and Duration, as of April 30, 2002(In millions of SDRs)

Afghanistan, Islamic State ofCongo, Democratic Rep. of theIraqLiberiaSomaliaSudanZimbabwe

Total

Total7.3

402.349.7

493.5214.2

1,094.393.8

2,355.0

GeneralDepartment(incl. SAF)

1

382.8—

440.9196.9

1,015.651.3

2,087.5

By Type

SDRDepartment

7.319.349.622.5

9.40.3—

108.4

TrustFund

—--

30.07.9

78.3—

116.2

PRGF

--

----

42.542.5

By DurationLess than6 months

0.54.31.63.91.96.8

40.759.6

More than6 months

6.9397.948.1

489.6212.2

1,087.653.1

2,295.4

obligations. The framework does not allow for remedialaction after a country reaches its completion point, orfor countries that reached their decision points prior toapproval of the framework. In the interest of trans-parency, and in line with existing policies, the IMF willmake public and share with other creditors relevantinformation on each case.

Arrears to the IMFIn FY2002, total overdue financial obligations to theI M F increased to SDR 2.36 billion from SDR 2.24 bil-lion a year earlier, mainly reflecting the continuedaccumulation of new arrears by Zimbabwe (Table 6.7).Zimbabwe represents the first new case of significantarrears to the G R A since 1993 and the first case ofarrears to the PRGF Trust.

At end-April 2002, more than 97 percent of the totalarrears to the IMF were protracted (outstanding formore than six months), about evenly divided betweenoverdue principal and overdue charges and interest;almost 90 percent of arrears were to the GRA.

Five countries with the largest protracted arrears tothe IMF—the Democratic Republic of the Congo,Liberia, Somalia, Sudan, and Zimbabwe—account foralmost 98 percent of the overdue financial obligationsto the IMF. 7 Under the IMF's strengthened coopera-tive strategy on arrears, remedial measures have beenapplied against the countries with protracted arrears tothe IMF. 8

7The overdue net SDR charges of the Islamic State of Afghanistanand Iraq account for the remaining less than 3 percent.

8In some cases (the Islamic State of Afghanistan, the DemocraticRepublic of the Congo, Iraq, and Somalia) application of remedialmeasures has been delayed or suspended because of civil conflicts, theabsence of a functioning government, or international sanctions.

During FY2002, 22 instances of short-term arrearswere cleared quickly and did not result in the applica-tion of any remedial measures.

In FY2002, net deferrals of charges to the G R A ofthe protracted arrears countries, for which the IMF iscompensated through the burden-sharing mechanism,amounted to SDR 33 million, raising the balance ofdeferred charges to SDR 1.1 billion.

The IMF's strategy on overdue financial obligationswas reviewed on August 22, 2001, and the ExecutiveBoard adopted strengthened remedial procedures forarrears to the PRGF Trust paralleling, to the extentpossible, the timetable of remedial measures for arrearsto the GRA. 9 The Board also decided to strengthentransparency with respect to arrears by agreeing that(1) information on arrears be published on the IMF'swebsite when they have been outstanding for threemonths (instead of six months as under the previouspolicy), and (2) a press release be issued on the occa-sion of each substantive Board action related to specificarrears cases. The Board also agreed that informationon missed repurchase expectations would be madepublic on the IMF's website at the three-month stage.

The Executive Board conducted several reviews ofmember countries' overdue financial obligations to theIMF during FY2002:• In reviewing the Democratic Republic of the

Congo's overdue financial obligations to the IMFon July 13, 2001, the Executive Board welcomedthe authorities' intention to implement a staff-

9 A fully parallel treatment of G R A and PRGF arrears is not possi-ble, because the former are breaches of obligations under the Articlesof Agreement and are subject to sanctions under Article XXVIwhereas arrears to the PRGF are not.

A N N U A L R E P O R T 2 0 0 2 69

1Less than SDR 50,000.


C H A P T E R 6

monitored program and make efforts to improverelations with the international community.

• The Board reviewed Liberia's overdue financialobligations to the IMF on February 25, 2002, anddetermined that Liberia had not cooperated ade-quately with the IMF in resolving its overduefinancial obligations to the IMF in the areas of pol-icy implementation and payments. The Board alsonoted that it was the Managing Director's intentionto initiate promptly the procedure to suspendLiberia's voting and related rights in the IMF. OnApril 16, 2002, the Board agreed to consider, on alater date, the complaint by the Managing Directorwith respect to the suspension of Liberia's votingand related rights in the IMF.

• The Executive Board reviewed Sudan's overduefinancial obligations on November 24, 2001, andexpressed regret over the delays that had occurred inSudan's monthly payments to the IMF and the pol-icy slippages under the staff-monitored program inthe first half of 2001. However, the Board notedthat Sudan had been affected by an adverse externalenvironment and indicated that it was prepared toconsider Sudan's request for a modification of thelevel of payments to the IMF to reflect Sudan'spayments capacity in the context of a new staff-monitored program.

• Zimbabwe first incurred arrears to the IMF on Feb-ruary 14, 2001; a complaint was issued on May 15,2001; and on September 24, 2001 the country wasdeclared ineligible to use the general resources ofthe I M F and removed from the list of PRGF-eligible countries. The Executive Board reviewedthe overdue financial obligations of Zimbabwe tothe IMF on three occasions during FY2002 (June8, 2001, September 24, 2001, and December 14,2001). At the third review, the Board regrettedZimbabwe's continued failure to meet its financialobligations to the IMF and agreed to consider theapplication of further remedial measures on theoccasion of the next review of Zimbabwe's arrearsto the IMF.During FY2002, the Board held no reviews of the

overdue financial obligations of the Islamic State ofAfghanistan, Iraq, and Somalia.

At the end of April 2002, the Democratic Republicof the Congo, Liberia, Somalia, Sudan, and Zimbabwewere ineligible under Article X X V I , Section 2(a) to usethe general resources of the IMF. Declarations of non-cooperation—a further step under the strengthenedcooperative arrears strategy—were in effect for theDemocratic Republic of the Congo and Liberia, andthe voting rights of the Democratic Republic of theCongo remained suspended.

70 A N N U A L R E P O R T 2 0 0 2


CHAPTER

Technical Assistance and Training

B esides its policy advice and financing, the IMFprovides technical assistance and training to its membercountries in its areas of expertise—including revenueadministration and expenditure management, centralbanking, financial sector sustainability, exchange ratesystems, economic and financial statistics, and relatedlegal fields. Technical assistance is an important benefitof IMF membership and is free in most cases, exceptwhen provided to countries that can afford to defraythe costs incurred in dispensing the assistance. TheIMF's technical assistance aims at strengthening thedesign and implementation of sound macroeconomicand financial policies, and at transferring know-how inthe process. By doing this, the IMF seeks to bolster theinstitutional capacity of its members and endeavors todeliver assistance that will have lasting benefits for themember's economy, including on sustainable growthand on poverty alleviation in the case of poorer mem-ber countries. Technical assistance helps countries toadopt and implement effective reforms, benefiting fromthe IMF's worldwide experience in addressing similarproblems in other countries and from its high-caliberexperts, drawn from the staff as well as from top publicand private institutions, central banks, and economicagencies around the world.

The IMF's membership has, in the past few years,attached increasing importance to technical assistance toreinforce the effectiveness of the IMF's surveillance andprogram work. Technical assistance is also expected toplay a central role in supporting the work of the IMF incrisis prevention and management; in capacity buildingfor low-income countries; and in restoring macroeco-nomic stability in postcrisis situations. For example,systematically following up recommendations relating tothe Financial Sector Assessment Program (FSAP), adopt-ing international standards, tracking public expenditureand other indicators for the Heavily Indebted PoorCountries (HIPC) Initiative, and combating moneylaundering and the financing of terrorism (Box 7.1) haveall led to increased demand for technical assistance.

Against this background, the IMF's Executive Boardhas emphasized the need for linking IMF technical

assistance to institutional priorities; for improving theefficiency of technical assistance delivery; and for mobi-lizing additional external resources. In the face of thelimited supply of technical assistance, effective coordi-nation and collaboration among providers—especiallythe international financial and development institutionsand bilateral development agencies—have become evenmore important.

In recognition of the increasing impact of technicalassistance on the IMF's other core operationalactivities—surveillance and use of financial resources—management decided to strengthen its oversight ofIMF technical assistance by upgrading the former Tech-nical Assistance Secretariat to a separate office underthe Office of the Managing Director in June 2001. TheOffice was renamed the Office of Technical AssistanceManagement (OTM), was expanded, and is nowheaded by a Director.

A more complete description of the goals, scope,and operational methods of the IMF's technical assis-tance is available in a number of documents, includingthe Policy Statement on IMF Technical Assistance(2001), accessible on the IMF's website.

Prioritizing the IMF's Technical AssistanceDuring the previous financial year, the Board put inplace a process to allocate resources for technicalassistance more effectively and to better align technicalassistance with policy priorities. The resulting frame-work is based on a set of "filters" used to assess themerit of individual technical assistance requests orprojects and to help staff make allocation decisions.1IMF technical assistance has been divided into five mainprogram areas covering crisis prevention, poverty reduc-tion, crisis resolution and management, post-conflict/post-isolation cases, and regional/multilateral arrange-ments. These program areas are complemented by threefurther categories of filters, as follows:

1For a description of these filters, see the Annual Report 2001, Box7.1, page 75.

A N N U A L R E P O R T 2 0 0 2 71

7


C H A P T E R 7

Box 7.1Combating Money Laundering and Financing of Terrorism: Technical Assistance and Coordination EffortsSince April 2001, the I M F has intensi-fied its work in the global efforts tocombat money laundering. Theseefforts took on heightened importancein the wake of the events of September11, 2001, as reflected in the November2001 and April 2002 communiquesof the I M F C . Both communiquesunderscored the need for enhancedtechnical assistance to help countriesidentify and remedy gaps in theirefforts on combating money launder-ing and the financing of terrorism( A M L / C F T ) . As a result, the IMF hasintensified technical assistance forA M L / C F T to member countries andis coordinating its activities with theWorld Bank and other organizations toenhance the effectiveness of assistanceand avoid duplication of effort. (SeeChapter 3.)

To align its technical assistance forA M L / C F T with its mandate and coreareas of expertise, the IMF has focusedon strengthening financial sector super-vision (both onshore and offshoresectors) and the legal and institutional

framework for A M L / C F T . These areasbroadly include:• Formulation of A M L / C F T laws and

regulations that meet internationalconventions and best practices;

• Development of the legal and insti-tutional framework for financialintelligence units that meet EgmontGroup requirements, includingarrangements for cross-bordercooperation;

• Strengthening the regulatory andsupervisory frameworks for thefinancial sectors that focus onA M L / C F T review, compliance, andcontrol mechanisms; and

• Training and awareness programs onA M L / C F T for the public and pri-vate sectors. An important elementof IMF technical assistance is itswork with national authorities andoffshore financial centers to preventabuse of their financial systems andterritories by criminal elements.As the pace of IMF and World Bank

assessments accelerates, the need forcloser coordination with donors and

organizers of technical assistance willbecome critical. To this end, the IMFand the World Bank, in collaborationwith the U N , the Financial Action TaskForce (FATF), and the Egmont Grouphave begun a global coordination initia-tive to avoid duplication of effort andenhance the effectiveness of availableresources. In April 2002, the IMF andthe World Bank organized a meeting inWashington of representatives frominstitutions that are globally active inA M L / C F T , including the FATF, theU N , the Egmont Group, regionalFATF-style bodies, multilateral develop-ment banks, the CommonwealthSecretariat, and bilateral donors. Themain aim of this meeting was to enablestakeholders to target their technicalassistance efforts more effectively and toestablish a network of contacts amongparticipating organizations. This meetingalso provided a forum for exchangingviews on the priority areas for technicalassistance and the need for resources tobuild institutional capacity, particularlyfor the regional FATF-style bodies.

• Target filters: the technical assistance must fallwithin the IMF's core areas of specialization, sup-port a limited number of key program areas, orbuttress policy priorities.

• Effectiveness filters: the technical assistance must bedeemed likely to have a substantial impact and beeffectively supported and implemented by the recipi-ent country. It also should be sustainable in terms offinancing and lasting in its effect.

• Partnership filters: technical assistance requests havepreference when they are delivered regionally, bene-fit several recipients, draw on multiple financialsources, or complement third-party assistance.Although the overall volume of technical assistance

delivered was broadly stable during FY2001 andFY2002 at some 340 person-years, and in spite of therelatively short period of implementation of the priori -tization system, some shift among activities has takenplace, mainly toward work in crisis prevention, post-conflict/isolation cases, and regional initiatives(Table 7.1).

New DevelopmentsIn recent years, regional arrangements to deliver theIMF's technical assistance have taken on greaterprominence, particularly for delivering training, facili-

tating countries' participation in the General DataDissemination System (GDDS), and cooperating withestablished regional organizations. The IMF has alsoused regional technical assistance centers to enhancethe delivery of assistance to members, especially thosefacing similar needs. This approach was originallyconceived to provide technical assistance to smallisland economies in the Pacific region in 1993, withthe establishment of the Pacific Financial TechnicalAssistance Center (PFTAC) in Suva, Fiji. Jointly estab-lished by the IMF and the United NationsDevelopment Program (UNDP) as the regional officefor the "Fiscal and Monetary Management Reformand Statistical Improvement Project" in 15 Pacificisland countries, the center has been operating success-fully ever since.

Modeled on the PFTAC, a new regional technicalassistance center was established in the Caribbean—theCaribbean Regional Technical Assistance Center(CARTAC)—in November 2001 (Box 7.2). As withthe Pacific island countries, the Caribbean governmentshave a strong voice in the formulation of technicalassistance work plans to ensure that they reflectnational priorities and realities and benefit from stronglocal ownership in their design, implementation, andfollow-up. Member governments' representatives play

72 A N N U A L R E P O R T 2 0 0 2


T E C H N I C A L A S S I S T A N C E A N D T R A I N I N G

an important role in guiding CARTAC' s overall poli-cies through their participation in its SteeringCommittee. Among other activities, the center is in theprocess of setting up an information-exchange websitewhere stakeholders will be able to post information oncurrent and proposed technical assistance activities.

Based on the positive experience with the Pacificand Caribbean Centers, the IMF adopted a similarapproach in its new Africa Capacity-BuildingInitiative, launched in response to a request by Africanheads of state in 2001 for enhanced IMF support. TheInitiative will involve establishing Regional TechnicalAssistance Centers in Africa (AFRITACs), with the firsttwo to be opened in the fall 2002, on a pilot basis, inEast and West Africa. If these are successful, anotherthree centers will be added to cover the rest of sub-Saharan Africa. Each center will have a team of a centercoordinator and up to five resident experts who willassist member countries to develop and implementtheir capacity-building programs, guided by thePoverty Reduction Strategy Paper (PRSP) each countryhas drawn up; help implement and monitor their ongo-ing technical assistance programs; facilitate donorcoordination of ongoing capacity-building activities;and provide technical advice.

The IMF has increasingly assisted members withlong-term capacity-building efforts; in addition to pro-viding them with immediate policy advice, cooperationand coordination with other bilateral and multilateralproviders of technical assistance have received greateremphasis. Such coordination has helped to avoid dupli-cation of effort and to bring in technical assistanceinputs that the IMF traditionally does not provide (forexample, computer equipment, training equipment,and other materials, as well as hands-on, day-to-daysupport).

Cooperation between the IMF and other technicalassistance providers covers many levels, from the simpleexchange of information (for example, through theIMF's participation at regular consultative group orroundtable meetings to coordinate donor assistance fordeveloping countries), through organizing the provi-sion of complementary forms of assistance (such asworking with the United Nations and other bilateraldonors involved in reconstruction in immediate post-conflict situations, as in the case of Kosovo and EastTimor), to a more comprehensive proactive role for theIMF in which it takes the lead in macroeconomic insti-tution building—such as through comprehensivemultiyear Technical Cooperation Action Plans(TCAPs).

Responding to calls from the I M F C , G-7, G-20,and the Financial Stability Forum, in April 2002 theIMF joined Canada, Switzerland, the United Kingdom,and the World Bank in launching the Financial SectorReform and Strengthening (FIRST) Initiative, which

Table 7.1Technical Assistance Delivery Indicators forMain Program Areas and Key Policy Initiativesand Concerns(Field delivery in person -years)1

Main Program AreasCrisis preventionPoverty reductionCrisis resolution and managementPost-conflict/isolationRegionalTotalKey Policy Initiatives and ConcernsAssistance on standards and codes,

excluding FSAPFSAP-relatedHIPC-associatedSafeguarding IMF resourcesOffshore financial centersPolicy reform/capacity buildingTotal

FY2001

28.677.335.918.527.2

187.4

16.21.8

13.70.51.4

153.8187.4

FY2002

32.669.328.923.234.9

188.8

13.63.4

21.40.65.1

144.7188.8

Source: IMF Office of Technical Assistance Management.Note: FSAP = Financial Sector Assessment Program; HIPC = Heavily

Indebted Poor Countries Initiative.1Excludes headquarters-based activities related to technical assistance.

will provide a mechanism for coordinating and mobiliz-ing additional financing for technical assistance to helpstrengthen financial sectors and implement standardsand codes. In addition, the IMF is now engaged withthe World Bank, the U N , the Financial Action TaskForce (FATF), and the Egmont Group in working outhow best to coordinate, mobilize, and finance technicalassistance efforts in combating money laundering andthe financing of terrorism.

Although the IMF finances its technical assistancemainly from its own resources, external financing is animportant source of additional support. Such externalfinancing is provided as grant contributions under theIMF's Framework Administered Account for TechnicalAssistance Activities. There were nine active subac-counts under the umbrella Framework Account.2 TheAccount was amended in December 2001 to permitthe establishment of multidonor subaccounts to

2These include the Japan Advanced Scholarship Program Subac-count, the Australia-IMF Scholarship Program for Asia Subaccount,the Switzerland Technical Assistance Subaccount, the French Techni-cal Assistance Subaccount, the Denmark Technical AssistanceSubaccount, the Australia Technical Assistance Subaccount, theNetherlands Technical Assistance Subaccount, the U K - D F I D Techni-cal Assistance Subaccount, and the Italy Technical AssistanceSubaccount.


C H A P T E R 7

Box 7.2Caribbean Regional Technical Assistance CenterThe Caribbean Regional TechnicalAssistance Center (CARTAC) providestechnical assistance and training in eco-nomic and financial management for itsmember countries. Located inBarbados, the center was inauguratedin November 2001. It is organized as aU N D P regional program with the IMFas executing agency. The IMF managesthe center's operations, provides itsprogram coordinator, and recruits andtechnically supervises its resident advi-sors through its technical assistancedepartments. The center is designed tohelp Caribbean Community( C A R I C O M ) members and theDominican Republic strengthen eco-nomic and fiscal management; improvefinancial sector supervision and regula-tion; and compile more timely anduseful economic, financial, and socialstatistics. Core areas of the center's

technical assistance involve publicexpenditure management; tax/customspolicy and administration; onshore andoffshore financial sector regulation andsupervision; and economic and finan-cial statistics, as needs-assessments hadshown that these were the areas inwhich improvements were most neces-sary. Because some of the Caribbeaneconomies are small, and suitably quali-fied and skilled personnel are scarce, aregional approach was seen as the mostcost-effective way of creating sustain-able capacity.

The center provides assistancethrough a program coordinator and ateam of five resident advisors, supple-mented by short-term contractualspecialists. It also features a strongtraining component, offering in-coun-try workshops, regional trainingcourses, and hands-on professional

attachments (internship programs formid-level government officials). CAR-TAC's training activities take place incooperation with existing institutions,such as the University of the WestIndies and the Eastern Caribbean Cen-tral Bank. Coordination andcooperation with other entities provid-ing technical assistance in economicand financial management are animportant aspect of C A R T A C ' s work.

Canada contributes over 50 percentof CARTAC's funding. Other contribu-tors include the U .K . Department forInternational Development, the Inter-American Development Bank, Ireland,the U N D P , USAID, and the WorldBank. The Caribbean DevelopmentBank is seconding a full-time economist.The participating countries contribute tothe center's cost, while the host countryprovides office space and facilities.

Box 7.3Recently Established Technical Assistance SubaccountsTwo new technical assistance subac-counts were established during FY2002.• The United Kingdom—Department

for International Development(DFID) Technical Assistance Subac-count was established in June 2001to enhance the capacity of membersto formulate and implement policiesin the macroeconomic, fiscal, mone-tary, financial, and related statisticalfields. Three contributions have beenmade to support the following spe-cific projects: (1) Cambodia T C A Pprogram ($1.2 million); (2) DistanceLearning for African Countries ($0.9million)—a 15-month project thatwill finance the participation of 80officials in the IMF Institute's Finan-

cial Programming and Policies courseusing distance-learning techniquessupplemented by a two-week resi-dential component; and (3) GeneralData Dissemination System (GDDS)Project for Anglophone Africa ($2.4million)—a two-year technical assis-tance project to help 14 countries inAnglophone Africa improve theircapacity to produce and disseminatereliable and timely macroeconomicand social statistics using the GDDSas a framework.The Italy Technical Assistance Subac-count was established in November2001 to enhance the capacity ofmember countries to formulate andimplement policies in the macroeco-

nomic, fiscal, monetary, financial,and related statistical fields, includ-ing training programs and projectsthat strengthen the legal and admin-istrative reform frameworks in theseareas. The first contribution of about$2 million is earmarked for financingtechnical assistance to strengthen thecapacity to formulate and implementpolicies related to international stan-dards and codes for financial, fiscal,and statistical management, includ-ing work related to combatingmoney laundering and the financingof terrorism, in the countries of Cen-tral and Eastern Europe, the Baltics,Russia, and other members of theformer Soviet Union.

support specific technical assistance programs, such asPFTAC and the AFRITACs. Box 7.3 describes the twosubaccounts set up during FY2002.

In FY2002; external financing from bilateral andmultilateral donor partners accounted for some 25 per-cent of total IMF technical assistance; Japan continuedto be the largest donor, providing some 70 percent ofthis external financing. Other bilateral donors includedAustralia, Canada, Denmark, France, Italy, the Nether-

lands, New Zealand, Switzerland, the United King-dom, and the United States. Multilateral donorsincluded the Asian Development Bank, the EuropeanUnion, the Inter-American Development Bank, theU N D P , and the World Bank.

Technical Assistance Delivery in FY2002Changes in the geographical distribution of technicalassistance delivery in FY2002 indicate how it has been

74 A N N U A L R E P O R T 2 0 0 2



Table 7.2Technical Assistance Sources and Delivery, FY1998-FY2002(In effective person -years)1

IMF technical assistance budgetStaffHeadquarters-based consultantsField experts

External technical assistance resourcesUnited Nations Development ProgramJapanOther cofinanciers

Total technical assistance resources

Technical assistance regional deliveryAfricaAsia and PacificEurope IEurope IIMiddle EastWestern HemisphereRegional and interregional

Technical assistance nonregional delivery 2

Total technical assistance delivery

Technical assistance delivery by departmentMonetary and Exchange Affairs DepartmentFiscal Affairs DepartmentIMF InstituteStatistics DepartmentLegal DepartmentOther departments3

Total technical assistance delivery

FY1998257.1165.622.069.492.422.853.616.0

349.5

293.864.547.224.849.229.236.242.7

55.6

349.5

121.9103.2

51.447.210.515.4

349.5

FY1999266.2164.020.381.899.214.370.314.7

365.4

308.572.957.922.744.931.932.545.8

56.9

365.4

127.2107.4

54.548.912.714.7

365.4

FY2000251.7158.516.476.985.5

8.768.0

8.8

337.2

282.269.844.424.140.427.528.247.9

55.1

337.2

112.2101.454.649.1

8.611.3

337.2

FY2001265.5171.822.771.077.7

8.459.59.8

343.2

275.868.257.030.240.827.823.728.0

67.5

343.2

101.2111.948.254.415.412.2

343.2

FY2002

268.8172.223.273.4

77.89.6

56.212.0

346.6

280.071.963.130.332.622.428.031.7

66.6

346.6

115.597.549.256.015.512.9

346.6

Source: IMF Office of Technical Assistance Management.1An effective person-year of technical assistance is 260 days. New definitions used since 2001; data adjusted retroactively.2Indirect technical assistance, including technical assistance policy, management, evaluation, and other related activities.3Includes the Policy Development and Review Department, the Bureau of Information Technology Services, and the Office of Technical Assistance

Management.

prioritized (Table 7.2 and Figures 7.1 and 7.2). Withthe added emphasis on poverty reduction over the lastfew years, sub-Saharan Africa's share rose, and inFY2002 received the largest share of technical assis-tance from the IMF. Technical assistance delivered tocentral and southern European transition countriespeaked in FY2001, reflecting the large capacity-building effort in the Balkans, but has since started todecline. Consistent with the trend over the past fiveyears, technical assistance for eastern European coun-tries declined notably, as most of the transitioneconomies'no longer require the massive amounts ofhelp that were delivered to them a decade ago.Technical assistance to the Asia-Pacific region hasremained high, in spite of the waning impact of the1997-98 financial crisis, reflecting a shift in deliverytoward post-conflict cases, such as Cambodia and East

Timor; a continued high level of assistance to supportreforms in Indonesia and Mongolia; and increasedtechnical assistance to China. The level of assistance toother geographical regions, as well as for interregionalprojects, has remained broadly the same.

The Monetary and Exchange Affairs Departmentwas the IMF's largest technical assistance providerand increased its delivery in FY2002 by some 12 per-cent, to 114 person-years, reflecting the increase inactivities linked to the emergence of the new interna-tional financial architecture. The Fiscal AffairsDepartment remained the IMF's second-largesttechnical assistance department, although its activitiessomewhat contracted. The IMF Institute (see below)and the Statistics Department provided the bulk ofthe remaining technical assistance delivered inFY2002.


C H A P T E R 7

Figure 7.1Technical Assistance by Function, FY2002(As a percent of total resources, in effective person-years)1

1An effective person-year of technical assistance is 260 days. For the IMF Institute,figure excludes training provided or coordinated by the Institute at headquarters.

Table 7.3IMF Institute Training Programs for Officials, FY1998-FY2002Program

Headquarters trainingCourses and seminarsParticipantsParticipant-weeks

Regional training institutes and programs1

Courses and seminarsParticipantsParticipant-weeks

Other overseas trainingCourses and seminarsParticipantsParticipant-weeks

Distance learningCourses2

Participants3

Participant-weeks4

Total courses and seminarsTotal participantsTotal participant-weeks

FY1998

19658

3,628

21567

1,575

21631

1,196

———61

1,8566,399

FY1999

20676

3,837

381,0952,325

20605

1,120

———78

2,3767,282

FY2000

22776

3,623

571,6323,185

24775

1,364

150

100103

3,1838,272

FY2001

22798

3,671

672,1023,760

19564

1,048

14386

1083,4648,565

FY2002

21819

2,982

802,5364,613

16439828

3134311117

3,7948,734

Source: IMF Institute.1Includes Joint Vienna Institute (established in 1992), IMF-Singapore Regional Training Institute

(1998), IMF-AMF Regional Training Program in United Arab Emirates (1999), Joint Africa Institute(JAI) in Cote d'Ivoire (1999), Joint China-IMF Training Program (2000), and Joint Regional Train-ing Center for Latin America in Brazil (2001). Data for JAI include courses delivered by the AfricanDevelopment Bank and the World Bank.

2These are not included in the total course count below as the residential segment is alreadyreflected in the headquarters' training category.

3Those participants who were invited to the residential part of the courses are included both hereand under headquarters training. They are counted only once in the totals below.

4Includes only participant-weeks for the distance part of the course. Participant-weeks for the resi-dential part are included in headquarters training.

Expanded Training bythe IMF InstituteIn recent years, the IMF Institutehas substantially increased the num-ber of training courses forgovernment officials, in response tothe large demand from membercountries. At the same time, it con-tinued to pay close attention to theevolving needs of member countriesin the mix of courses offered and inthe development of new courses.

In FY2002, the IMF Institutedelivered 117 courses and seminarsfor officials, providing over 8,700participant-weeks of training (Table7.3). The number of training activi-ties and participants rose by 8 percentand 10 percent, respectively, overFY2001 levels, to double what theyhad been in FY1998. The number ofparticipant-weeks of training rose by36 percent over the past four years—a more modest increase than in thenumber of training activities, reflect-ing the greater emphasis in recentyears on shorter and more specializedcourses adapted to the needs of theIMF's member countries.

The expansion of IMF Institutetraining has been greatly facilitatedby the development of a network ofIMF regional training institutes and

76 A N N U A L R E P O R T 2 0 0 2

Figure 7.2Technical Assistance by Region, FY2002(As a percent of total resources, in effective person-years)



Table 7.4IMF Institute Regional Training Programs

Regional Program

Joint Vienna Institute

IMF-Singapore RegionalTraining InstituteIMF-AMF RegionalTraining ProgramJoint Africa InstituteJoint China-IMFTraining ProgramJoint Regional TrainingCenter for Latin America

DateEstablished

1992

1998

1999

19992000

2001

Location

Austria

Singapore

United ArabEmiratesCote d'IvoireChina

Brazil

Cosponsors

Austrian authorities, Bank for InternationalSettlements, European Bank forReconstruction and Development,Organization for Economic Cooperationand Development, World Bank, and WorldTrade Organization1

Government of Singapore

Arab Monetary Fund

African Development Bank, World BankPeoples Bank of China

Government of Brazil

Participating Countries

Transition countries inEurope and Asia

Developing and transitioncountries in Asia and the PacificMember countries of the ArabMonetary FundAfrican countriesChina

Latin American countries andPortugese-speaking Africancountries

programs, following on the favorable experience withthe Joint Vienna Institute (JVI), established in 1992(Table 7.4). Five new regional institutes and programsbegan operations over the past four years: the IMF-Sin-gapore Regional Training Institute (STI) in 1998, theI M F - A M F Regional Training Program (RTP) and theJoint Africa Institute (JAI) in 1999, the Joint China-IMF Training Program (CTP) in 2000, and the JointRegional Training Center for Latin America (BTC) in2001. The number of training activities at the regionalprograms rose from 21 in FY1998 to 80 in FY2002.

This regional approach has allowed the IMF Instituteto increase training considerably without expanding itsfacilities in Washington and to tailor its programs to theneeds of the different regions. It has also been a cost-effective way of addressing the large demand fortraining, as cosponsors of the regional training institutesand programs are making substantial financial contribu-tions through cost-sharing arrangements.

New technology applications have also contributedto the expansion of training through a distance-learningFinancial Programming and Policies course, deliveredfor the first time in FY2000. In FY2002, the IMF Insti-tute provided three deliveries of this course, combining9-10 weeks of Internet-based instruction with a two-week residential segment in Washington, D.C.

Although the principal focus of its overseas trainingis now on the IMF regional institutes and programs,

the IMF Institute continues to see its cooperation withregional training institutes outside the IMF network asan important tool for capacity enhancement. At thesame time, courses and seminars in Washington haveremained a central part of the IMF Institute's program.Headquarters-based courses offer access to a broaderrange of staff experience and skills than can be mar-shaled for overseas activities, which is especiallyimportant for longer courses. Washington participantscan more broadly compare experiences, develop a widernetwork of contacts, and more easily gain insights intothe operations of the IMF.

The IMF Institute pays close attention to curriculumdevelopment. In FY2002, new courses on InflationTargeting and Banking Supervision were delivered, andcourses on Assessing Financial System Stability,Financial Market Analysis, Fiscal Sustainability andTransparency, and Macroeconomic Forecasting wereunder development for delivery in FY2003. The IMFInstitute has also continued to tailor programs on keycurrent issues to the needs of high-level officials. InFY2002, these included seminars on exchange rateregimes, investor relations, fiscal rules, and povertyreduction strategies. The active research program main-tained by the staff of the IMF Institute, together withthe research contributions of visiting scholars, hashelped to ensure that programs are topical and state ofthe art.

A N N U A L R E P O R T 2 0 0 2 77

1A number of other European countries and the European Union, although not formal sponsors of the JVI, provide financial support.


CHAPTER

Organization, Budget, and Staffing

Financial year 2002 saw several major changeswithin the institution. During the year the IMF bidfarewell to First Deputy Managing Director StanleyFischer and to Economic Counsellor and Director ofthe Research Department Michael Mussa and wel-comed their successors—Anne Krueger and KennethRogoff. Jack Boorman, who stepped down as Directorof the Policy Development and Review (PDR) Depart-ment, retained his position as Counsellor and became aSpecial Adviser to the Managing Director. He was suc-ceeded as P D R director by Timothy Geithner. GerdHausler joined the IMF as Counsellor and Director ofthe new International Capital Markets Department,which came into being in FY2002. In addition, theIndependent Evaluation Office (IEO) under MontekSingh Ahluwalia became operational.

External experts provided the impetus for other sig-nificant developments. In June 2001 a panel of outsideexperts presented a report to the Executive Board onthe IMF's internal budgeting processes. The report rec-ommended a number of changes to the IMF's budgetsystem, several of which have already been put intopractice. Other reforms will be made in FY2003 andFY2004. And in early 2002, the Board was presentedwith a report by a panel of experts on the systems andprocedures for resolving employment-related disputesbetween the IMF and its staff members. While gener-ally supportive of the IMF's existing policies, the reportmade a number of suggestions for improvement, nearlyall of which were accepted by management and will beimplemented during FY2003.

In addition, the IMF reviewed its Emergency Oper-ations and Business Continuity Plans, and tested bothits short- and long-run plans. As a result, the IMF isimproving its computer backup capabilities and busi-ness continuity plans.

OrganizationThe IMF is governed by its Board of Governors, andits business is conducted by an Executive Board, aManaging Director, a First Deputy Managing Director,two other Deputy Managing Directors, and a staff of

international civil servants whose sole responsibility isto the IMF. The institution's founding Articles ofAgreement require that staff appointed to the IMFdemonstrate the highest standards of efficiency andtechnical competence and reflect the organization'sdiverse membership.

Executive BoardThe IMF's 24-member Executive Board, as the IMF'spermanent decision-making organ, conducts the insti-tution's day-to-day business. In calendar year 2001, theBoard held 129 formal meetings, 8 seminars, and 111informal, committee, and other meetings.

The Executive Board's discussions are largely basedon papers prepared by IMF management and staff. In2001, the Board spent about 70 percent of its timeon member country matters (especially Article IVconsultations and reviews and approvals of IMFarrangements); 20 percent of its time on multilateralsurveillance and policy issues (such as the world eco-nomic outlook, developments in international capitalmarkets, global financial stability reports, IMF financialresources, strengthening the international financial sys-tem, the debt situation, and issues related to IMFlending facilities and program design); and its remain-ing time on administrative and other matters.

DepartmentsThe IMF staff is organized mainly into departmentswith regional (or area), functional, information and liai-son, and support responsibilities (Figure 8.1). Thesedepartments are headed by directors who report to theManaging Director.

Area DepartmentsSix area departments—African, Asia and Pacific, Euro-pean I, European II, Middle Eastern, and WesternHemisphere—advise management and the ExecutiveBoard on economic developments and policies in coun-tries in their region. Their staffs are responsible also forputting together financial arrangements to supportmembers' economic reform programs and for review-

78 A N N U A L R E P O R T 2 0 0 2

8


O R G A N I Z A T I O N , B U D G E T , A N D S T A F F I N G

ing performance under these IMF-supported programs. Together withrelevant functional departments,they provide member countries withpolicy advice and technical assistanceand maintain contact with regionalorganizations and multilateral insti-tutions in their geographic areas.Supplemented by staff in functionaldepartments, area departments carryout much of the IMF's country sur-veillance work through directcontacts with member countries. Inaddition, 86 area department staffare assigned to members as IMF res-ident representatives (see Box 8.1).

Functional and Special ServicesDepartmentsThe Fiscal Affairs Department isresponsible for activities involvingpublic finance in member countries.It participates in area departmentmissions on fiscal issues, reviews the fiscal content ofIMF policy advice and IMF-supported adjustment pro-grams, and provides technical assistance in publicfinance. It also conducts research and policy studies onfiscal issues, as well as on income distribution andpoverty, social safety nets, public expenditure policyissues, and the environment.

The International Capital Markets Department(ICM), established in May 2001, assists the ExecutiveBoard and management in overseeing the internationalmonetary and financial system and enhances the IMF'scrisis prevention and crisis management activities. Aspart of surveillance, the I C M prepares a quarterly GlobalFinancial Stability Report (see Box 2.2) that assessesdevelopments and systemic issues in international capitalmarkets. The department liaises with private capital mar-ket participants, national authorities responsible forfinancial system policies, and official forums dealingwith the international financial system. In addition, thedepartment plays a leading role in the IMF's conceptualand policy work related to international capital marketaccess and gives technical advice to members on accessto, and how to benefit from, interactions withinternational markets, as well as on strategies for exter-nal debt management.

The IMF Institute provides training for officials ofmember countries—particularly developing countries—in such areas as financial programming and policy,external sector policies, balance of payments methodol-ogy, national accounts and government finance statistics,and public finance. The Institute also conducts an activeprogram of courses and seminars in economics, finance,and econometrics for IMF economists. (See Chapter 7.)

Box 8.1IMF Resident RepresentativesAt the end of April 2002, the IMF had86 resident representatives covering 87member countries in Africa, Asia,Europe, the Middle East, and the West-ern Hemisphere, and plans were underway to open new posts in Afghanistan,Kosovo, and the Democratic Republicof the Congo. These posts—usuallyfilled by one IMF employee supportedby local staff—help to enhance IMFpolicy advice and are often set up inconjunction with a reform program.The representatives, who typically havegood access to key national policymak-ers, can have a major impact on thequality of IMF country work. In partic-ular, resident representatives contributeto the formulation of IMF policyadvice, monitor performance—

especially under IMF-supportedprograms—and coordinate technicalassistance. They can also alert the IMFand the host country to potential policslippages, provide on-site program support, and play an active role in IMFoutreach in member countries. Sincethe advent of enhanced initiatives forlow-income countries, resident repre-sentatives have helped membersdevelop their poverty reduction strate-gies by taking part in country-leddiscussions on the strategy and presenting IMF perspectives. They alsosupport monitoring of program imple-mentation and institution building,working with different branches of government, civil society organizations,donors, and other stakeholders.

The Legal Department advises management, theExecutive Board, and the staff on the applicable rulesof law. It prepares most of the decisions and other legalinstruments necessary for the IMF's activities. Thedepartment serves as counsel to the IMF in litigationand arbitration cases, provides technical assistance onlegislative reform, assesses the consistency of laws andregulations with selected international standards andcodes, responds to inquiries from national authoritiesand international organizations on the laws of the IMF,and arrives at legal findings regarding IMF jurisdictionon exchange measures and restrictions.

The Monetary and Exchange Affairs Departmentprovides analytical and technical support, includingdevelopment and dissemination of good policies andbest practices, to member countries and area depart-ments on issues related to financial sector systems andsoundness—including prudential regulation, supervi-sion, and systemic restructuring; central banking,monetary, and exchange policies and instruments; andcapital flows and exchange measures and systems. Insurveillance activities and requests for the use of IMFresources, the department reviews issues related to itsareas of competence and provides its expertise in policyassessment and development. It also delivers andadministers technical assistance in these areas, coordi-nating with collaborating central banks, supervisoryagencies, and other international organizations.

The Policy Development and Review Department(PDR) plays a central role in the design and implemen-tation of IMF financial facilities, surveillance, and otherpolicies. Through its review of country and policy work,P D R ensures the consistent application of IMF policies

A N N U A L R E P O R T 2 0 0 2 79


AN

NU

AL

R

EP

OR

T

20

02

Figure 8.1IMF Organization Chart(As of April 30, 2002) oard of Governors

Executive Boa

r Managing Director

Deputy Managing Directors

IndependentNation Office

AREADEPARTMENTS

AfricanDepartment

Asia and PacificDepartment

European I ^ ^ HDepartmeri^^M

European t ^ ^ HDepartmerH^^B

*merff^^H

^ B Western ^ ^ HH Hemispher̂ ^^Hj^^H Departmer|̂ ^HB

^

IMF

MiddleEastern

Depart

Investment Office-Staff Retirement

Plan

Office ofBudget and

Planning

Office ofInternal Audit

and Inspection

FUNCTIONAL AND SPECIAL SERVICESDEPARTMENTS

FiscalAffairs

Department

Monetary andExchange Affairs

Department

PolicyDevelopmentand ReviewDepartment

JointAfricaInstitute

JointViennaInstitute

SingaporeTrainingInstitute

InternationalCapital Marki

Departmenlr

IStatistics

Department

LTreasurer'sDepartment

ResearchDepartment

INFORMATION &LIAISON

ExternalRelations

Departmei

Office inEurope

Office inGei

Regional Office forAsia and

the Pacific1

m•-tFund Office

lited Nations1

SUPPORTSERVICES

Human ResourcesDepartment

Secretary'sDepartment

Technology andGeneral Services

Department

CH

AP

TE

R 8

Office ofTechnical Assistai

Management

1 Attached to the Office of Managing Director.



throughout the institution. In recent years, the depart-ment has spearheaded the IMF's work in strengtheningthe international financial system, in streamlining andfocusing conditionality, and in developing the PovertyReduction and Growth Facility and the H I P C Initiative.With area department staff, P D R economists participatein country missions and assist member countries that aremaking use of IMF resources by helping to mobilizeother financial resources. The department plays a keyrole in the preparation of meetings of the I M F C and theDevelopment Committee, as well as representing theIMF in other groups (e.g., Group of Twenty-Four) andat other institutions (especially the World Bank).

The Research Department conducts policy analysisand research in areas relating to the IMF's work. Thedepartment plays a prominent role in surveillance andin developing IMF policy concerning the internationalmonetary system and cooperates with other depart-ments in formulating IMF policy advice to membercountries. It coordinates the semiannual World Eco-nomic Outlook exercise and prepares analysis for thesurveillance discussions of the Group of Seven, Groupof Twenty, and such regional groupings as the AsiaPacific Economic Cooperation (APEC) forum, and theExecutive Board's seminars on world economic andmarket developments. The department also maintainscontacts with the academic community and with otherresearch organizations.

The Statistics Department maintains databases ofcountry, regional, and global economic and financialstatistics and reviews country data in support of theIMF's surveillance role. It is also responsible for devel-oping statistical concepts in balance of payments,government finance, and monetary and financial statis-tics, as well as producing methodological manuals. Thedepartment provides technical assistance and trainingto help members develop statistical systems and pro-duces the IMF's statistical publications. In addition, itis responsible for developing and maintaining standardsfor the dissemination of data by member countries.

The Treasurer's Department formulates the IMF'sfinancial policies and practices; conducts and controlsfinancial operations and transactions in the GeneralDepartment, SDR Department, and AdministeredAccounts; controls expenditures under the administra-tive and capital budgets; and maintains IMF accountsand financial records. The department's responsibilitiesalso include quota reviews, IMF financing and liquid-ity, borrowing, investments, the IMF's income, andoperational policies on the SDR and is the lead depart-ment for the conduct of safeguards assessments ofmember country central banks.

Information and LiaisonThe External Relations Department plays a key role inpromoting public understanding of and support for the

IMF and its policies. It aims to make the IMF's policiesunderstandable through many activities aimed at trans-parency, communication, and engagement with a widerange of stakeholders. It prepares, edits, and distributesmost IMF publications and other material, promotescontacts with the press and other external groups, suchas civil society organizations and parliamentarians, andmanages the IMF's website (see also Appendix V) .

The IMF's offices in Asia, Europe, and at theUnited Nations maintain close contacts with otherinternational and regional institutions (see AppendixIV). The U N Office also makes a substantive contribu-tion to the Financing for Development process.

Support ServicesThe Human Resources Department helps ensure that theIMF has the right mix of staff skills, experience, anddiversity to meet the changing needs of the organiza-tion, and that human resources are managed, organized,and deployed in a manner that maximizes their effective-ness, moderates costs, and keeps the workload and stressat acceptable levels. The department develops policiesand procedures that help the IMF achieve its workobjectives, manages compensation and benefits, recruit-ment, and career planning programs, and supportsorganizational effectiveness by assisting departmentswith their human resources management goals.

The Secretary's Department organizes and reports onthe work of the IMF's governing bodies and providessecretariat services to them, as well as to the Group ofTwenty-Four. In particular, it assists management inpreparing and coordinating the work program of theExecutive Board and other official bodies, includingscheduling and assisting in the conduct of Board meet-ings. The department also manages the AnnualMeetings, in cooperation with the World Bank.

The Technology and General Services Departmentmanages and delivers a wide range of services essentialfor the IMF's operation. These include informationservices (information technology; telecommunications;documents, records, and archives management; andlibrary services); facilities construction and manage-ment; general administrative services (travelmanagement, conference and catering services, graph-ics, procurement services, and Headquarters, field, andinformation technology security); and language services(translation, interpretation, and publications in lan-guages other than English). In the wake of the terroristattacks of September 11, 2001, in New York City andWashington and given the heightened awareness ofsecurity over the past few years, the department formeda new division to coordinate its security services.

The IMF also has offices responsible for internalauditing and review of work practices, budget matters,technical assistance, and investments under the staffretirement plan.


C H A P T E R 8

Table 8.1Recommended Reforms to IMF Internal BudgetingRecommendation Status

Management to develop a top-down budget stance.Departments to prepare business plans.Identify outputs and output groups as focus of IMF activity.Distinguish between line and central departments, alongwith the full costing of resources allocated to outputs.Establish a better time and activity reporting system.Establish forward estimates by departments where first-yearforward estimate becomes the starting point for thenext budget.Incorporate cost of all new activities into budget andforward estimates at the time of the policy decision.Develop measures of performance and zero-based reviewsof outputs.Further review the scope for outsourcing.Maintain staff ceiling tables as an adjunct to thebudget process.

AdoptedAdoptedUnder review by Task ForceUnder review by Task Force

Under review by Task ForceTo be implemented forFY2003 budget

Adopted

Under review by Task Force

In processAdopted

Independent Evaluation OfficeEstablished by the International Monetary Fund's Exec-utive Board in July 2001, the Independent EvaluationOffice (IEO) provides objective and independent evalu-ation on issues related to the IMF. The office operatesindependently of IMF management and at arm's lengthfrom the IMF's Executive Board. The IEO enhancesthe learning culture of the IMF, promotes understand-ing of the IMF's work, and supports the IMF'sExecutive Board in its governance and oversight.

The IEO's work program for FY2003 was made finalfollowing extensive consultation with governmentauthorities, nongovernment organizations, members ofthe academic community, and representatives of thefinancial sector, as well as the staff, management, andExecutive Board. The first three projects chosen are(1) an investigation of prolonged use of IMF financialresources and its implications for the IMF; (2) an exam-ination of fiscal adjustment in IMF-supported programsin a group of low- and middle-income countries; and(3) an evaluation of the role of the IMF in three recentcapital account crisis cases (Brazil, Indonesia, andKorea). A description of the work program and terms ofreference and issues papers for the first three projects areavailable on the IEO's website.

Administrative and Capital BudgetsBudget ReformsA panel of external experts reviewed the IMF's internalbudget processes in 2001. Their report contained anumber of recommendations aimed at improving thetransparency, accountability, and efficiency of the IMF's

budget system. At a Board seminarheld in June 2001, Executive Direc-tors broadly supported a number ofimmediate reforms including:• a shift to total resource costing,

while retaining a staff ceiling;• a comprehensive costing of new

proposals to avoid future under-funded mandates;

• the reintroduction of a medium-term framework; and

• the preparation of departmentalbusiness plans.In line with the evaluators' report,

Executive Directors called for furtherwork to assess how to achieve agreater focus on outputs in formulat-ing the budget. Managementestablished a task force to investigatesuch reforms and develop specificproposals. Table 8.1 lists the mainrecommendations and their status ofimplementation as of end-April

2002. Some reforms will be undertaken in FY2003,while others are under review for implementation inFY2004. The capital budget regime was also reformedto improve its transparency and efficiency.

Budgets and Actual Expenditure in FY2002The IMF's Administrative Budget for the financial yearthat ended April 30, 2002 (FY2002) authorized totalexpenditure of $736.9 million (or $695.4 million net ofestimated reimbursements). The FY2002 Capital Bud-get of $40 million included $14.8 million for buildingfacilities projects, $15.4 million for information technol-ogy equipment, and $9.8 million for major softwaredevelopment. Actual gross administrative expendituresduring the year totaled $721.3 million ($676.7 millionnet of reimbursements), and capital project disburse-ments totaled $61.5 million (Table 8.2).

Thus, actual administrative expenses fell belowauthorized spending by $18.7 million. The main fac-tors that account for the underspent administrativebudget in FY2002 are:• the receipt of one-time credits totaling some $8 mil-

lion due to past overpayments into the MedicalBenefits Plan and the Group Life Insurance program;

• lower-than-budgeted travel expenditure in the after-math of the attacks on September 11, 2001; and

• cancellation of the 2001 Annual Meetings.The above were partially offset, however, by expen-

ditures on heightened security measures.

Budgets in FY2003In April 2002, the Executive Board approved a grossAdministrative Budget of $794.3 million for FY2003



($746.4 million net of estimated reimbursements).This represents a 7.8 percent increase in gross terms(7.3 on a net basis) over the approved budget of theprevious year. Three factors account for the increase:intensified work on combating money laundering andthe financing of terrorism; higher expenditures onsecurity; and the establishment of two regional techni-cal assistance centers in Africa (AFRITACs; see Chapter7). The cost of all other substantive and administrativepolicy changes were more than fully offset by efficiencysavings secured during budget discussions.

The external evaluators' report on internal budget-ing discussed above recommended that the budgetprocess pay attention to outputs as well as inputs.Based on available information, the estimated share ofresources allocated to four output groups—surveil-lance, use of Fund resources, capacity enhancement(including technical assistance and external training),and research—is shown in Figure 8.2.

For the Capital Budget, the Executive Boardapproved an appropriation of $215.0 million for expen-ditures over the next three years, covering projectsbeginning in FY2003 as well as the completion of pro-jects started in earlier years. Of this amount, $43.2million is for building facilities and $42.5 million forinformation technology systems. The remaining$129.3 million is provided for the second headquarters

Figure 8.2Share of Resources by Output Category, FY2003(As a percent of total costs)

building (HQ2), bringing the total budget for theH Q 2 building to $149.3 million.

Medium-Term FrameworkManagement's goal for the medium term is to consoli-date, not expand, the size of the institution whileseeking efficiency savings and cutbacks on lower-prior-ity work to accommodate new priorities and reducestaff stress. A nominal increase of about 4.5 percent in

Table 8.2Administrative and Capital Budgets, Financial Years 2000-20031

(Values expressed in millions of U.S. dollars and SDRs)

Administrative BudgetI. Personnel Expenses

SalariesOther Personnel ExpensesSubtotal

II. Other ExpensesTravelOther ExpensesSubtotal

III. ReimbursementsTotal Administrative BudgetCapital BudgetCapital projectsMemorandum itemAdministrative expenses reported in the

financial statements2

Financial Year EndedApril 30, 2000:Actual Expenses

267.7149.4

417.1

84.5122.7207.2(41.3)

583.0

39.5

448.4

Financial Year Ended Financial Year EndedApril 30, 2001:Actual Expenses

(In millions of

292.1154.0

446.1

91.3138.1229.4(37.5)

638.0

34.6(In millions

384.6

April 30, 2002:Actual Expenses

U.S. dollars)

320.7161.0

481.7

94.4145.3239.6(44.6)

676.7

61.5of SDRs)

530.8

Financial Year EndingApril 30, 2003:

Budget

348.2173.7521.9

112.9159.5272.4(47.9)746.4

215.0

585.0

1Administrative and capital budgets as approved by the Board for the financial year ending April 30, 2003, compared with actual expenses for the finan-cial years ended April 30, 2000, April 30, 2001, and April 30, 2002.

2The IMF's financial statements are prepared in SDRs in accordance with International Accounting Standards (IAS). They include depreciation of somecapital budget projects and account for employee benefits in accordance with IAS 19 and other reconciled differences to the budget in U.S. dollars.


C H A P T E R 8

Table 8.3Distribution of Professional Staff by Nationality(In percent)

Region1 1980 1990 2001

Africa

AsiaJapanOther Asia

EuropeFranceGermanyItalyUnited KingdomRussia and countries of the

former Soviet UnionEast Europe and Baltic countriesOther Europe

Middle East

Western HemisphereCanadaUnited StatesOther WesternHemisphere

Total

3.8

12.31.4

10.9

39.56.93.71.78.2

19.0

5.4

39.12.6

25.9

10.6

100.0

5.8

12.71.9

10.8

35.15.54.31.48.0

15.9

5.5

41.02.8

25.9

12.3

100.0

6.6

16.31.3

15.0

29.73.93.72.26.2

2.01.99.8

4.5

42.93.2

25.4

14.3

100.0

'Regions are defined on the basis of the country distribution of theIMF's area departments. The European region includes countries in boththe European I and European II area departments. The Middle Eastregion includes countries in North Africa.

the administrative budget in both FY2004 and FY2005is established as the estimated cost of existing policies.

Changes in Management and Senior Staff• First Deputy Managing Director. On August 31,

2001, FDMD Stanley Fischer left his position, whichhe had held since 1994. His successor, AnneKrueger, Stanford University professor and formerVice President of the World Bank, took up herduties on September 1, 2001.

• Economic Counsellor and Director of the ResearchDepartment. After 10 years of IMF service, MichaelMussa relinquished his post on June 29, 2001.Harvard University professor Kenneth S. Rogoff, anauthority on international economics, succeededMr. Mussa on August 2, 2001.

• Director of the Policy Development and ReviewDepartment. Long-serving PDR Director and lat-terly Counsellor Jack Boorman relinquished hisdirector's position on November 30, 2001. His suc-cessor, Timothy Geithner, former U.S. TreasuryUndersecretary for International Affairs and SeniorFellow for International Economics at the Councilon Foreign Relations, assumed the duties ofDirector on December 3, 2001.

• Director of the International Capital MarketsDepartment. Gerd Hausler, formerly chairman ofDresdner Bank AG's investment banking arm and amember of the banking group's Managing Board,became Counsellor and the first Director of the newInternational Capital Markets Department onAugust 1,2001.

• Director of Special Operations. Anoop Singh, for-merly Deputy Director of the Asia and PacificDepartment, was appointed to the newly created posi-tion of Director of Special Operations on February25, 2002, with responsibility for leading the IMF staffteam working with the Argentine authorities. (Subse-quently, on June 10, it was announced that Mr. Singhwould succeed Claudio Loser as Director of the West-ern Hemisphere Department and that SpecialOperations would by the end of the summer beintegrated into the IMF's organizational structure.)

StaffThe Managing Director appoints a staff whose soleresponsibility is to the IMF, whose efficiency and tech-nical competence are expected to be, as set forth in theArticles of Agreement, of the "highest standards," andwhose diversity by nationality reflects its membershipand gives "due regard to the importance of recruitingpersonnel on as wide a geographical basis as possible."In accordance with these high standards, the IMF hasput in place a financial disclosure process for staff.

To provide the continuity and institutional memoryfrom which the membership benefits, the IMF has anemployment policy designed to recruit and retain acorps of international civil servants interested in spend-ing a career, or a significant part of a career, at the IMF.At the same time, the IMF recognizes the value ofshorter-term employment and recruitment of midcareerprofessionals consistent with the changing labor marketand the benefit of fresh perspectives. In the case of anumber of skills and jobs—relating mainly to certainservices and highly specialized economic and financialskills—business considerations have called for shorter-term appointments or for outsourcing activities.

As of December 31, 2001, the IMF employed 787staff at the assistant level and 1,846 professional staff(about two-thirds of whom were economists). In addi-tion to its regular staff, the IMF had 343 contractualemployees on its payroll, including technical assistanceexperts, consultants, and other short-term staff notincluded in the regular staff ceiling. Of the IMF's 183member countries, 133 were represented on the staff.(See Table 8.3 for the evolution of the nationality dis-tribution of IMF professional staff since 1980.)

Recruitment and RetentionOver the course of 2001, 324 new staff members joinedthe IMF—231 external recruits and 93 conversions to

84 A N N U A L R E P O R T 2 0 0 2



A9

A10A11

A12

A13

staff status. The 231 external hires(125 economists, 37 hires in profes-sional and managerial grades inspecialized career streams, and 69assistants) represent an increase of 2over the 229 staff members hired in2000. O f the external hires in 2001,78 were midcareer economists and36 (plus one internally recruited)entered the Economist Program. Thetwo-year Economist Program servesto familiarize entry-level economistswith the work of the IMF by placingthem in two different departments,each for a 12-month period, and thenoffering regular staff appointments tothose who perform well.

During 2001, 146 staff separatedfrom the organization. The separa-tion rate of staff in professional andmanagerial grades was 5.5 percent(101 staff) in 2001. This representsan increase from 5.1 percent (88staff) in 2000 and a decline from 5.9percent (92 staff) in 1999.

Dispute ResolutionEarly in 2001, management appointedan external panel of three independentexperts to carry out a comprehensivereview of its systems and proceduresfor resolving employment-related dis-putes arising between the IMF andstaff members. The panel reported tomanagement in early 2002. It con-cluded that the IMF has developed alarge internal body of law that appro-priately covers employment terms andconditions as well as the duties, oblig-ations, and rights of staff members. Inaddition, it has set up comprehensiveformal and informal systems foremployees to raise concerns regarding rules and regula-tions on employment terms and conditions and to resolveemployment-related disputes. Nevertheless, the panel rec-ommended a number of changes or clarifications in thecurrent system and current procedures. Nearly all of therecommendations were accepted by management and arebeing implemented during 2002. A report outliningmanagement's views on the recommendations was pre-sented to the Executive Board in April 2002.

Salary StructureTo recruit and retain the staff it needs, the IMF hasdeveloped a compensation and benefits systemdesigned to be competitive, to reward performance,

Table 8.4IMF Staff Salary Structure(In U.S. dollars, effective May 1, 2002)

Grade

A1

A2A3A4A5A6

A7A8

RangeMinimum

22,210

24,90027,85031,20034,99039,100

43,86049,120

RangeMaximum

33,350

37,32041,79046,84052,47058,720

65,80073,700

Illustrative Position Titles

52,240

60,10069,010

77,280

86,580

78,400

90,140103,550

115,940

129,840

A14A15/B1B2B3B4B5

96,950109,560126,310150,100174,920205,980

145,450164,380183,270195,310218,640247,260

Not applicable (activities at this level have beenoutsourced)DriverStaff Assistant (Clerical)Staff Assistant (Beginning Secretarial)Staff Assistant (Experienced Secretarial)Senior Secretarial Assistant, Other Assistants(e.g., Editorial, Computer Systems, Human ResourcesResearch Assistant, Administrative AssistantSenior Administrative Assistants (e.g., Accounting,Human Resources)Librarian, Translator, Research Officer, HumanResources OfficersAccountant, Research Officer, Administrative OfficerEconomist (Ph.D. entry level), Attorney, Specialist(e.g., Accounting, Computer Systems, HumanResources)Economist, Attorney, Specialist (e.g., Accounting,Computer Systems, Human Resources)Economist, Attorney, Specialist (e.g., Accounting,Computer Systems, Human Resources)Deputy Division Chief, Senior EconomistDivision Chief, Deputy Division ChiefDivision ChiefAssistant Department Director, AdvisorDeputy Department Director, Senior AdvisorDepartment Director

Note: The above salary structure for IMF staff is intended to be internationally competitive toenable the IMF to secure highly qualified staff from all member countries. The salaries are reviewedannually by the Executive Board. They are kept in line with the salaries for equivalent grades andpositions in private sector financial and industrial firms and in representative public sector agencies,mainly in the United States. Because IMF staff other than U.S. citizens are usually not required topay income taxes on their IMF compensation, the salaries are set on a net-of-tax basis, which is gen-erally equivalent to the after-tax take-home pay of the employees of the public and private sectorfirms from which IMF salaries are derived.

and to take account of the special needs of a multina-tional and largely expatriate staff The IMF's staff salarystructure is reviewed annually and, if warranted,adjusted on the basis of a comparison with salaries paidby selected private financial and industrial firms andpublic sector organizations in the United States,France, and Germany. After analyses of updated com-parator salaries, the salary structure was increased 4.8percent for FY2002, and the Board approved anincrease of 4.0 percent for FY2003 (Table 8.4).

Management RemunerationReflecting the responsibilities of each managementposition and the relationship between the management

A N N U A L R E P O R T 2 0 0 2 85


C H A P T E R 8

Table 8.5Distribution of Staff by Gender

1980 1990 20011

Staff

All StaffTotalWomenM e n

Support StaffTotalWomenM e n

Professional staffTotalWomenM e n

EconomistsTotalWomenM e n

Specialized career streamsTotalWomenM e n

Managerial staffTotalWomenM e n

EconomistsTotalWomenM e n

Specialized career streamsTotalWomenM e n

Number

1,444676768

613492121

646173473

36242

320

284131153

18511

174

994

95

867

79

Percent

100.046.853.2

100.080.319.7

100.026.873.2

100.011.688.4

100.046.153.9

100.05.9

94.1

100.04.0

96.0

100.08.1

91.9

Number

1,774827947

642540102

897274623

52970

459

368204164

23513

222

1849

175

514

47

Percent

100.046.653.4

100.084.115.9

100.030.569.5

100.013.286.8

100.055.444.6

100.05.5

94.5

100.04.9

95.1

100.07.8

92.2

Number

2,6331,2241,409

787662125

1,494513981

936211725

558302256

35249

303

28731

256

651847

Percent

100.046.553.5

100.084.115.9

100.034.365.7

100.022.577.5

100.054.145.9

100.013.986.1

100.010.889.2

100.027.772.3

1Includes only staff on duty.

and staff salary structures, the salary structure for man-agement, as of July 1, 2001, is as follows:

Managing Director $327,8801

First Deputy Managing Director $279,596Deputy Managing Directors $266,276Management remuneration is subject to a combina-

tion of periodic structural reviews by the ExecutiveBoard and annual revisions. It is autonomous and notformally linked to remuneration in other internationalorganizations.

Executive Board RemunerationUpon the recommendation of the Board of Governors'Committee on the Remuneration of Executive Direc-

tors, the Governors approvedfrom July 1, 2001, increases of4.3 percent in the remunerationof Executive Directors and theirAlternates. The remuneration ofExecutive Directors is$175,910.2 The remunerationof Alternate Executive Directorsis $152,160.3

DiversityThe Executive Board continuedto emphasize staff diversity asimportant for improving theIMF's effectiveness as aninternational institution. TheIMF's Senior Advisor onDiversity, who reports to theManaging Director, furtherdeveloped indicators to mon-itor and strengthen nationalityand gender diversity (Tables8.3, 8.5, and 8.6), as well asdiversity management in theorganization. In line with theIMF's diversity strategy,during calendar year 2001,the Human Resources Depart-ment (HRD) focused onintegrating diversity into itshuman resource managementpolicies and practices, includingperformance competencies andmanagement development,and initiated work on newprograms and benchmarks toguide the IMF's diversityefforts.

The Senior Advisor works closely with H R D andother departments to identify needs and opportunitiesfor promoting diversity and carrying out depart-mental action plans, which have been prepared andmonitored every year since 1996. In FY2002,departments integrated these action plans into com-prehensive human resource plans, which in the futurewill provide a framework for the IMF's diversityefforts. Typically, diversity actions include initiatives

1In addition, a supplemental allowance of $58,680 is paid to coverexpenses.

2In determining the salary adjustments for Executive Directors for2001, the committee took into consideration the percentage changein remuneration of the highest-level civil servant in the ministry offinance and central bank for selected member countries, and thatcountry's change in its consumer price index.

3These figures do not apply to the U.S. Executive Director andAlternate Executive Director, who are subject to U.S. congressionalsalary caps.

86 A N N U A L R E P O R T 2 0 0 2



in recruitment and career development, orientationand mentoring programs for newcomers, and measuresto improve communication and increase the trans-parency of human resource policies, procedures, andstatistics.

In addition to diversity-specific measures to addressand prevent problems, the IMF is placing moreemphasis on people management skills and diversitysensitivity in the performance assessment of supervisorsand in recruitment and promotion decisions, whichare of particular importance in an institution with adiverse workforce. To promote family-friendly workarrangements and benefits, the IMF opened a daycare center and extended most benefits to domesticpartners.

The departmental annual progress reports submit-ted to HRD in FY2002 and the supplementary inputfrom departments to the Senior Advisor on Diversityshowed improvements in diversity awareness andskills, more systematic and structured approaches,and better people management practices. Progress wasalso achieved in the recruitment, promotion, andoverall representation of underrepresented staffgroups. Progress toward having more women at themanagerial level moved ahead after having stalled in2001, but the number of developing country staff atthe managerial level dropped slightly. Achieving satis-factory diversity of staff in an institution thatemphasizes career employment is a continuing goalthat requires concerted effort. Progress is monitoredand problems are reported in a very transparent man-ner, including in the Diversity Annual Report on theIMF's website.

New BuildingPlanning is well under way to construct a second head-quarters building on property owned by the IMFadjacent to the existing headquarters building. In April2002 the District of Columbia's Zoning Commissionvoted to approve rezoning for the project, and demoli-tion of the existing building has begun. After reviewingbids for construction and selecting a contractor, theIMF's development manager expects to begin con-

Table 8.6Distribution of Staff by Developing andIndustrial Countries

1990 2001Staff

All StaffTotalDeveloping countriesIndustrial countries

Support StaffTotalDeveloping countriesIndustrial countries

Professional staffTotalDeveloping countriesIndustrial countries

EconomistsTotalDeveloping countriesIndustrial countries

Specialized career streamsTotalDeveloping countriesIndustrial countries

Managerial staffTotalDeveloping countriesIndustrial countries

EconomistsTotalDeveloping countriesIndustrial countries

Specialized career streamsTotalDeveloping countriesIndustrial countries

Number

1,774731

1,043

642328314

897343554

529220309

368123245

23560

175

713274439

516

45

Percent

100.041.258.8

100.051.148.9

100.038.261.8

100.041.658.4

100.033.466.6

100.025.574.5

100.038.461.6

100.011.888.2

Number

2,6331,1291,504

787439348

1,494586908

936385551

558201357

352104248

28792

195

651253

Percent

100.042.957.1

100.055.844.2

100.039.260.8

100.041.158.9

100.036.064.0

100.029.570.5

100.032.167.9

100.018.581.5

struction in the fall of 2002. Under current projections,the new building will accommodate all staff within theheadquarters complex, reducing overall costs by elimi-nating the need to lease office space. The project isexpected to be completed by 2006.

A N N U A L R E P O R T 2 0 0 2 87


APPENDIXES 2002


APPENDIXES

Contents

Appendix IInternational Reserves 95

Foreign Exchange Reserves 95Holdings of IMF-Related Assets 95Gold Reserves 95Developments During First Quarter of 2002 95Currency Composition of Foreign Exchange Reserves 95Tables in Appendix I

1.1 Official Holdings of Reserve Assets 961.2 Share of National Currencies in Total Identified Official Holdings of Foreign

Exchange, End of Year 971.3 Currency Composition of Official Holdings of Foreign Exchange, End of Year 98

Appendix II

Financial Operations and Transactions 100Tables in Appendix II

II.1 Arrangements Approved During Financial Years Ended April 30, 1953-2002 100II.2 Arrangements in Effect During Financial Years Ended April 30, 1991-2002 102II.3 Stand-By Arrangements in Effect During Financial Year Ended April 30, 2002 103II.4 Extended Arrangements in Effect During Financial Year Ended April 30, 2002 104II.5 Arrangements Under the Poverty Reduction and Growth Facility in Effect

During Financial Year Ended April 30, 2002 105II.6 Summary of Disbursements, Repurchases, and Repayments, Financial Years

Ended April 30, 1948-2002 106II.7 Purchases and Loans from the IMF, Financial Year Ended April 30, 2002 107II.8 Repurchases and Repayments to the IMF, Financial Year Ended April 30, 2002 108II.9 Outstanding IMF Credit by Facility and Policy, Financial Years Ended April 30,

1994-2002 110II.10 Summary of Bilateral Contributions to the PRGF and PRGF-HIPC Trusts 111II.11 Holdings of SDRs by All Participants and by Groups of Countries as Percent

of Their Cumulative Allocations of SDRs, at End of Financial Years EndedApril 30, 1993-2002 113

II.12 Key IMF Rates, Financial Year Ended April 30, 2002 114II.13 Members That Have Accepted the Obligations of Article VIII, Sections 2, 3,

and 4 of the Articles of Agreement 115II.14 Exchange Rate Arrangements and Anchors of Monetary Policy as of

December 31, 2001 117

Appendix III

Principal Policy Decisions of the Executive Board 120A. Access Policy and Limits in Credit Tranches and Under Extended Fund

Facility—Extension of Deadline for Completion of Review 120B. IMF's Income Position 120C. Post-Conflict Emergency Assistance 120D. Poverty Reduction and Growth Facility (PRGF) 122E. Overdue Financial Obligations 124F. Eleventh General Review of Quotas 127G. Technical Assistance—Framework Administered Account—Amendment to Instrument 127

A N N U A L R E P O R T 2 0 0 2 91


H. Biennial Review of Implementation of Fund Surveillance and of 1977 SurveillanceDecision—Overview; and Extension of Deadline for Review 127

I. General Data Dissemination System—Amendment 127J. Reducing Work Pressures 127

K. European Central Bank 128

Appendb IV

IMF Relations with Other International! ©Derivations 129Regional Representation and Techni ce 129Liaison with Intergovernmental Groups 129Relations with the United Nations 130Collaboration with the World Bank 130Cooperation with Regional Development Banks 131Role of IMF Management 131

External Relations 132Table in Appendix V

V . I fii' li :; .ti : ,sgsgggsgsgsgggsggdgggggg ' v r-m Crfled Apri l 30, 2002 . . . . . . . . . . . . . . . . . . . . . . 134

92 A N N U A L R E P O R T 2002

A P P E N DI X E Z

Appendix V

Press Communiques of the International Monetary a n d Financial Committeeand the Development Committee U 3<Q>International Monetary and Financial Committee of the Boai1 .of Governors

of the International Monetary FundFourth Meeting, Ottawa, Canada, November 17, 2001 136Fifth Meeting, Washington, D.C., April 20, 2002 138

Joint Ministerial Committee of the Boards of Governors of the Bank and the Fundon the Transfer of Real Resources to Developing Countries (Development Committee)

Sixty-Fourth Meeting, Ottawa, Canada, November 18, 2001 141Sixty-Fifth Meeting, Washington, D.C, April 21, 2002 144

Appendix VII

Changes in Membership of the Executive Board 150

^ t m m w r n a ; " i ^ G i n ) A u r f 3 ® ^ © . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 . 6

Annon/>liv X/lll

Appendix IX

I P t a m d d S M » @ o ^ z%r f 3®, MM . . . .•. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H53Financial Statements of the International Monetary FundAuditor's Report . 154General Department

Balance Sheets 155Income Statements 156Statements of Changes in Resources 157Statements of Cash Flows ..' 158Notes to the Financial Statements 159

Schedule 1—Quotas, IMF's Holdings ofC&ggsgsgg \sgssggsggg >n?e Tranche Positions,and Members' Use of Resources 1.66

Schedule 2—Financial Resources and Liquidity Position , * . . . . . . . . . . . . . 170Schedule 3—Status of Arrangements 171SDR Department

Balance Sheets 172Income Statements 173

A

Appendix VI


C O N T E N T S

A N N U A L R E P O R T 2 0 0 2 93

Statements of Cash Flows . 173Notes to the Financial Statements 174

Schedule 1—Statements of Changes in SDR Holdings 176Schedule 2—Allocations and Holdings of Participants 178

Financial Statements of the Accounts Administered by the IMFAuditor's Report 182Poverty Reduction and Growth Facility Trust

Combined Balance Sheets 183Combined Statements of Income and Changes in Resources 183Notes to the Combined Financial Statements 184

Schedule 1—Schedule of Outstanding Loans 188Schedule 2—Contributions to and Resources of the Subsidy Account 189Schedule 3—Schedule of Borrowing Agreements 190Schedule 4—Status of Loan Arrangements 191

Poverty Reduction and Growth Facility Administered AccountsBalance Sheets .. 192Statements of Income and Changes in Resources 193Notes to the Financial Statements 194

PRGF-HIPC Trust and Related AccountsCombined Balance Sheets . . . . 197Combined Statements of Income and Changes in Resources 197Notes to the Combined Financial Statements 198

Schedule 1—Post-SCA-2 Administered Account—Holdings, Interest, and Transfers 202Schedule 2—PRGF-HIPC Trust Account—Contributions and Transfers 203Schedule 3—Umbrella Account for HIPC Operations—Grants, Interest

and Disbursements 205Schedule 4—PRGF-HIPC Trust Account—Cumulative Contributions and Transfers 206

Other Administered AccountsBalance Sheets 208Statements of Income and Changes in Resources 209Notes to the Financial Statements 210


APPENDIX

International Reserves

Total international reserves, including gold, increased by9 percent during 2001 and stood at SDR 1.9 trillion at theend of the year (Table I.1). Foreign exchange reserves, whichconstitute the largest component of official reserve holdings,grew by 9 percent, to S D R 1.6 trillion. IMF-related assets,which make up the rest of nongold reserves, increased by 16percent, to S D R 76 billion. The market value of gold held bymonetary authorities increased by 2 percent in 2001, toS D R 203 billion at year-end.1

Foreign Exchange ReservesNinety-six percent of nongold assets consisted of foreignexchange reserves at the end of 2001. The developing coun-tries, which held 62 percent of all foreign exchange reserves atthe end of 2001, increased their holdings by 13 percent, toSDR 1 trillion, following comparable increases in the previoustwo years. During 2001, the foreign exchange holdings ofindustrial countries rose by 4 percent, to S D R 617 billion.

In 2001, the oil-exporting developing countries, whichhold about 10 percent of all developing countries' foreignexchange reserves, increased their foreign exchange assets by7 percent, following increases of 15 percent and 28 percent inthe two preceding years. Foreign exchange reserves of the netcreditor developing country group rose by 9 percent, toSDR 201 billion, and those of net debtor countries grew by14 percent to S D R 799 billion at the end of 2001. Foreignexchange reserves of net debtors without debt-servicing prob-lems increased by 16 percent, to S D R 659 billion, while thoseof countries with debt-servicing problems increased by6 percent, to S D R 140 billion.

Holdings of IMF-Related AssetsDuring 2001, total IMF-related assets (that is, reserve posi-tions in the IMF and SDRs) increased by 16 percent,following declines of 10 percent in each of the previous twoyears. Industrial countries hold a majority of IMF-relatedassets: 82 percent at the end of 2001. The increase in IMF-related assets was mainly attributable to a 20 percent growthin members' reserve positions in the IMF—which consist ofmembers' reserve tranche and creditor positions—to S D R 57billion. S D R holdings of I M F members increased by 6 per-cent, to S D R 20 billion, reflecting a decline in holdings bythe IMF and other prescribed holders.

Gold ReservesThe market value of gold reserves increased by 2 percent, toS D R 203 billion, reflecting an increase of 3 percent in theS D R price of gold in 2001; the physical stock of official golddeclined by one percent. The share of gold in officially heldreserves has declined gradually to 11 percent at the end of2001, whereas in the early 1980s gold represented about halfof all officially held reserves. Most of the gold reserves (83percent) are held by industrial countries: gold constituted 20percent of these countries' total reserves at the end of 2001.Gold reserves accounted for 3 percent of the total reserves ofthe developing countries.

Developments During First Quarter of 2002During the first quarter of 2002, total reserve assets rose byS D R 57 billion, of which SDR 32 billion represents anincrease in foreign exchange reserves. As a consequence of arise in the SDR price of gold since the end of 2001, the mar-ket value of gold reserves increased by SDR 23 billion duringthe first quarter of 2002, while the physical stock of officialgold declined somewhat since end-2001. Holdings of IMFrelated assets remained close to their end-2001 level, atS D R 78 billion.

Currency Composition of ForeignExchange ReservesThe currency composition of foreign exchange reserves haschanged gradually over the past decade, with the share ofU.S. dollar holdings in foreign exchange reserves rising from55 percent in 1992 to 68 percent in 1999 and staying at thatlevel through the end of 2001 (Table 1.2). The euro, whichreplaced 11 European currencies and the European currencyunit (ECU) on January 1, 1999, accounted for 13 percent oftotal foreign exchange reserves in 2001. The share of the eurohas stayed effectively unchanged since 1999. Given that, atthe introduction of the euro, the Eurosystem's reserves previ-ously denominated in euro legacy currencies2 becamedomestic assets of the euro area, the share of the euro in1999-2001 is not directly comparable with the previousyears' combined share of the four euro legacy currencies iden-tified in Table I.2: deutsche mark, French franc, Netherlandsguilder, and private E C U . However, after adjusting the datato take into account only holdings of these currencies outside

1Official monetary authorities comprise central banks and also cur-rency boards, exchange stabilization funds, and treasuries, to theextent that they perform monetary authorities' functions.

2Those foreign exchange reserves that, up to December 31, 1998,were denominated in euro area former national currencies and privateECUs.

A N N U A L R E P O R T 2 0 0 2 95

I


A P P E N D I X I

Table I.1Official Holdings of Reserve Assets1

(In billions of SDRs)

1996 1997 1998 1999 2000 2001March2002

All countriesTotal reserves excluding gold

IMF-related assetsReserve positions in the IMFSDRs

Subtotal, IMF-related assetsForeign exchange

Total reserves excluding goldGold2

Quantity (millions of ounces)Value at London market price

Total reserves including goldIndustrial countriesTotal reserves excluding gold





Total reserves including goldDeveloping countriesTotal reserves excluding gold





Total reserves including goldNet debtor developing countriesTotal reserves excluding gold





Total reserves including goldNet debtor developing countries without debt-servicing problemsTotal reserves excluding gold

IMF-related assetsReserve positions in the IMF 3.5SDRs 1.8

Subtotal, IMF-related assets 5.3Foreign exchange 327.2

Total reserves excluding gold 332.5Gold2

Quantity (millions of ounces) 80.3Value at London market price 20.6

Total reserves including gold 353.1

38.018.556.5

1,085.71,142.2

904.9232.4

1,374.6

47.120.567.6

1,193.71,261.3

887.1190.8

1,452.1

60.620.481.0

1,163.11,244.0

966.5197.6

1,441.6

54.818.573.2

1,295.21,368.4

964.5204.0

1,572.4

47.418.565.9

1,478.31,544.1

950.6200.2

1,744.3

56.919.676.4

1,616.71,693.0

941.4203.3

1,896.4

58.119.677.7

1,649.11,726.7

937.8226.7

1,953.4

32.614.547.1

501.7548.8

748.2192.1740.9

41.315.556.8

520.9577.7

732.5157.5735.2

53.915.869.8

475.8545.6

808.7165.3710.9

46.814.761.5

524.8586.3

810.4171.4757.7

39.714.454.1

595.6649.7

796.5167.8817.5

47.016.062.9

617.1680.0

783.6169.2849.3

47.615.863.4

623.0686.4

779.6188.4874.8

5.44.09.4

584.1593.4

156.740.2

633.7

5.75.0

10.8672.8683.6

154.633.3

716.8

6.74.5

11.2687.3698.5

157.932.3

730.7

8.03.7

11.7770.4782.1

154.132.6

814.7

7.74.1

11.8882.7894.4

154.132.5

926.9

9.93.6

13.5999.6

1,013.0

157.934.1

1,047.1

10.53.8

14.31,026.01,040.3

158.238.2

1,078.5

3.92.96.9

448.3455.1

129.433.2

488.3

4.23.98.1

534.8542.8

127.927.5

570.4

5.03.38.4

546.8555.1

131.026.8

581.8

5.63.18.7

608.1616.8

127.927.1

643.9

5.43.38.7

699.2707.9

128.027.0

734.8

6.42.79.1

798.9808.0

131.728.5

836.4

6.42.99.3

822.7832.0

132.031.9

863.9

3.83.06.8

400.4407.2

82.717.8

424.9

4.62.67.2

425.7432.8

85.917.6

450.4

4.82.47.2

485.9493.0

83.817.7

510.8

4.62.16.7

566.5573.1

83.517.6

590.7

5.72.17.7

658.9666.6

87.118.8

685.4

5.72.27.9

684.0691.8

87.021.0

712.8

Note: Components may not sum to totals because of rounding.Source: International Monetary Fund, International Financial Statistics.1End of year figures for all years except 2002. "IMF-related assets" comprise reserve positions in the IMF and SDR holdings of all IMF members. The entries

under "Foreign exchange" and "Gold" comprise official holdings of those IMF members for which data are available and certain other countries or areas.2One troy ounce equals 31.103 grams. The market price is the afternoon price fixed in London on the last business day of each period.

96 A N N U A L R E P O R T 2 0 0 2


I N T E R N A T I O N A L R E S E R V E S

Table I.2Share of National Currencies in Total Identified Official Holdings of Foreign Exchange, End of Year1

(In percent)

All countriesU.S. dollarJapanese yenPound sterlingSwiss francEuroDeutsche markFrench francNetherlands guilderECUs3

Unspecified currencies4

Industrial countriesU.S. dollarJapanese yenPound sterlingSwiss francEuroDeutsche markFrench francNetherlands guilderECUs3


Developing countriesU.S. dollarJapanese yenPound sterlingSwiss francEuroDeutsche markFrench francNetherlands guilderE C U s 3


1992

55.37.63.11.0—

13.32.70.79.76.5

48.87.62.40.4—

15.12.90.4

16.75.7

64.57.74.01.9—

10.82.31.0—

7.7

1993

56.77.73.01.1—

13.72.30.78.26.6

50.27.82.20.3—

16.42.60.4

15.24.8

64.37.54.02.0—

10.52.01.0—

8.7

1994

56.67.93.30.9—

14.22.40.57.76.4

50.88.22.30.2—

16.32.40.3

14.65.0

63.17.64.41.7—

11.92.40.8—

8.0

1995

57.06.83.20.8—

13.72.30.46.88.9

51.86.62.10.1—

16.42.30.2

13.47.0

62.47.04.31.5—

11.02.30.6—

10.9

1996

60.36.03.40.8—

13.11.90.35.98.3

56.15.62.00.1—

15.61.70.2

12.06.7

64.36.54.81.4—

10.62.00.5—

9.9

1997

62.45.23.70.7—

12.91.40.45.08.4

57.95.81.90.1—

15.90.90.2

10.96.4

66.24.75.11.1—

10.31.80.6—

10.2

1998

65.95.43.90.7—

12.21.40.40.89.3

66.76.62.20.2—

13.41.30.21.97.4

65.34.55.21.1—

11.31.50.5—

10.8

1999

68.45.54.00.7

12.72

————

8.8

73.56.52.30.1

10.72

————

6.9

64.64.75.31.1

14.2————

10.2

2000

68.15.23.90.7

13.02

————

9.1

73.36.32.00.2

10.42————

7.6

64.24.45.21.0

15.0————

10.1

2001

68.34.94.00.7

13.02

————

9.0

74.55.51.80.49.72

————

8.1

64.14.55.50.9

15.3————

9.6

Note: Components may not sum to total because of rounding.1Only IMF member countries that report their official holdings of foreign exchange are included in this table.2Not comparable with the combined share of euro legacy currencies in previous years because it excludes the euros received by euro area members when

their previous holdings of other euro area members' legacy currencies were converted into euros on January 1, 1999.3In the calculation of currency shares, the E C U is treated as a separate currency. E C U reserves held by the monetary authorities existed in the form of

claims on both the private sector and European Monetary Institute (EMI), which issued official ecus to European Union central banks through revolvingswaps against the contribution of 20 percent of their gross gold holdings and U . S. dollar reserves. On December 31, 1998, the official ECUs wereunwound into gold and U . S. dollars; hence, the share of ECUs at the end of 1998 was sharply lower than a year earlier. The remaining ecu holdingsreported for 1998 consisted of ECUs issued by the private sector, usually in the form of E C U deposits and bonds. On January 1, 1999, these holdings wereautomatically converted into euros.

4The residual is equal to the difference between total foreign exchange reserves of IMF member countries and the sum of the reserves held in the curren-cies listed in the table.

5The calculations here rely to a greater extent on IMF staff estimates than do those provided for the group of industrial countries.

the euro area, their combined share in 1998 was virtuallyidentical to the share of the euro in 1999.

The share of the Japanese yen in total foreign exchangereserves declined from 8 percent at end-1992 to 5 percent atthe end of 1997, and has since stayed at about that levelthrough 2001. During the past decade, the share of poundsterling has remained between 3 and 4 percent and that ofthe Swiss franc at approximately 1 percent. The share ofunspecified currencies, which include currencies not identifiedin Table I.2 as well as foreign exchange reserves for which no

information on currency composition is available, hasremained at 9 percent since the end of 1998.

For industrial countries, the share of U.S. dollar holdingsincreased throughout the 1990s to reach 74 percent in 1999,and increased slightly to 75 percent at the end of 2001. Theshares of the euro and the Japanese yen in those countries'foreign exchange reserves declined by less than one percent-age point each from the preceding year, to 10 percent and 6percent, respectively. Shares of pound sterling and the Swissfranc have been practically unchanged over the past ten years.


A P P E N D I X I

Table I.3Currency Composition of Official Holdings of Foreign Exchange, End of Year1

(In millions of SDRs)

1993 1994 1995 1996 1997 1998 1999 2000 2001U.S. dollar

Change in holdingsQuantity changePrice change

Year-end valueJapanese yen


Year-end valuePound sterling


Year-end valueSwiss franc


Year-end valueEuro


Year-end valueDeutsche mark


Year-end valueFrench franc


Year-end valueNetherlands guilder


Year-end valueEuropean currency unit


Year-end valueSum of the above3


Year-end valueTotal official holdings4

Change in holdingsYear-end value

51,25349,833

1,420390,698

6,206930

5,27653,023

1,7352,095-361

20,620

1,2841,382

-987,621

————

12,72518,692-5,96794,552

-131915

-1,04516,169

423718

-2954,582

-2,8201,503

-4,32356,654

70,67576,068-5,393

643,919

76,975750,192

32,57057,314

-24,744423,269

6,0073,1232,884

59,030

3,9924,129-136

24,612

-932-1,372

4396,689

————

11,8627,0814,781

106,414

1,9121,262

65018,081

-512-731

2194,070

959-1,035

1,99457,613

55,85969,772

-13,914699,777

60,648810,841

73,53278,555-5,023

496,801

193,089

-3,07059,048

3,2403,833-594

27,852

210-541

7516,899

————

13,2966,8176,478

119,709

1,974668

1,30720,055

-301-547

2463,769

1,665-1,1572,822

59,278

93,63590,7182,917

793,412

121,118931,959

121,226103,25017,976

618,027

2,6858,021

-5,33661,733

7,3533,2584,095

35,205

8811,811-9307,780

——

—

14,05020,159-6,109

133,759

-981-334-647

19,074

-330-152-1783,439

9851,833-849

60,262

145,868137,846

8,022939,280

153,7671,085,726

87,76745,11542,651

705,793

-3,197-56

-3,14158,536

6,1804,6301,549

41,385

-3575

-1097,745

————

11,89622,336

-10,440145,655

-3,388-2,037-1,35215,686

1,1381,443-305

4,577

-3,240515

-3,75557,022

97,12072,02125,099

1,036,400

107,9691,193,695

18,39148,533

-30,142724,185

975-3,4944,469

59,511

1,1232,760

-1,63642,509

-54-128

747,691

————

-11,457-15,344

3,887134,198

-488-890

40215,198

-569-708

1404,009

-47,848-49,304

1,4569,174

-39,925-18,576-21,350996,474

-30,5811,163,114

108,76490,52218,242

832,949

7,122-2,1289,250

66,634

6,4876,651-163

48,996

2881,260-9727,979

9,7862

28,368-18,582154,163

————

————

———

————

132,448124,673

7,7741,110,720

132,1041,295,218

118,24972,23246,017

951,197

6,40211,146-4,74573,036

4,7786,163

-1,38553,774

1,7801,481

2999,759

27,94731,304-3,357

182,110

————

————

————

————

159,156122,32736,830

1,269,876

183,2551,478,473

86,81251,43735,375

1,038,010

1,7309,178

-7,44874,765

7,5147,023

49161,288

575468107

10,335

15,80419,097-3,293

197,914

————

————

————

————

112,43587,20325,232

1,382,312

138,2041,616,677

Note: Components may not sum to totals because of rounding.1The currency composition of foreign exchange is based on the IMF's currency survey and on estimates derived mainly, but not solely, from official

national reports. The numbers in this table should be regarded as estimates that are subject to adjustment as more information is received. Quantity changesare derived by multiplying the changes in official holdings of each currency from the end of one quarter to the next by the average of the two SDR prices ofthat currency prevailing at the corresponding dates. This procedure converts the change in the quantity of national currency from own units to SDR units ofaccount. Subtracting the SDR value of the quantity change so derived from the quarterly change in the SDR value of foreign exchange held at the end oftwo successive quarters and cumulating these differences yields the effect of price changes over the years shown.2Represents the change from end-1998 holdings of euro legacy currencies by official institutions outside the euro area.3Each item represents the sum of the currencies above.4Includes a residual whose currency composition could not be ascertained, as well as holdings of currencies other than those shown.

98 A N N U A L R E P O R T 2 0 0 2


I N T E R N A T I O N A L R E S E R V E S

The share of unspecified currencies stood at 8 percent in2001.

The share of the U.S. dollar in developing countries' for-eign exchange reserves was 64 percent in 2001, a level that hasremained relatively constant over the last decade. Holdings ofthe euro accounted for 15 percent of those countries' foreignexchange reserves, a level unchanged from the previous yearand one percentage point higher than its share in 1999. Dur-ing the past decade, the share of the Japanese yen has graduallydecreased by about 3 percentage points, to 5 percent at theend of 2001, while the share of pound sterling has increasedby about 2 percentage points, to 6 percent. The share of theSwiss franc has remained virtually unchanged at 1 percent since1997. Unspecified currencies accounted for 10 percent ofdeveloping countries' foreign exchange reserves in 2001.

Changes in the SDR value of foreign exchange reservescan be decomposed into quantity and valuation (price)changes (Table I.3). Official reserves held in U.S. dollarsincreased by S D R 87 billion in 2001, which reflects anincrease of SDR 51 billion in the quantity of U.S. dollarholdings and a valuation increase of SDR 35 billion. TheSDR 19 billion increase in the quantity of euro holdings waspartly offset by a price decline of SDR 3 billion, resulting in anet increase of SDR 16 billion in 2001. Similarly, a quantityincrease of SDR 9 billion in Japanese yen holdings was offsetconsiderably by a SDR 7 billion valuation decline, resulting ina net increase of SDR 2 billion. Increases in pound sterlingand Swiss franc holdings of SDR 8 billion and SDR 1 billion,respectively, are to a large extent attributable to changes inquantity.


Financial Operations and Transactions

The tables in this appendix supplement the information given in Chapter 6 on the IMF's financial operations and policies.Components may not sum to total because of rounding.

Table II.1Arrangements Approved During Financial Years Ended Apri l 30, 1953—2002

FinancialYear

Number of ArrangementsAmounts Committed Under Arrangements

(In millions of SDRs)Stand-By EFF SAF PRGF Total Stand-By EFF SAF PRGF Total

1953195419551956195719581959196019611962

19631964196519661967

19681969197019711972

19731974197519761977

19781979198019811982

1983198419851986

222291115141524

1919242425

3226231813

1315141819

1814242119

27252418

21

44

115

42

1

22229

1115141524

1919242425

3226231813

1315142020

1818283224

31272419

55634048

1,162

1,0441,057364460

1,633

1,5312,1602,159575591

2,352541

2,381502314

3221,394390

1,1884,680

1,285508

2,4795,1983,1065,4504,2873,2182,123

284518

1,093797

5,2217,9088,671

95

825

55634048

1,162

1,0441,057364460

1,633

1,5312,1602,159575591

2,352541

2,381502314

3221,394390

1,4725,198

1,2851,6003,27710,41911,014

14,1214,3823,2182,948

100 A N N U A L R E P O R T 2 0 0 2

IIAPPENDIX


F I N A N C I A L O P E R A T I O N S A N D T R A N S A C T I O N S

Table II.1 (concluded)

FinancialYear

Number of ArrangementsAmounts Committed Under Arrangements

(In millions of SDRs)Stand-By E F F S A F PRGF Total Stand-By E F F S A F PRGF Total

198719881989199019911992

19931994199519961997

19981999200020012002

221412161321

1118171911

95111111

10

154321

11

1

7435

8711812

81010149

323024262029

2328313228

2119252620

4,118 358 4,476

1,7022,9563,2492,7865,587

1,9711,38113,0559,6453,183

27,33614,32515,70613,09339,438

245207

7,6272,3382,493

1,242779

2,3358,3811,1933,07814,0906,582

-90

67042737152

4927

182

955415454743

5271,1701,1971,476

911

1,738998641

1,2491,781

2,6174,54511,3285,5938,826

3,7893,35716,58719,6845,28732,15229,41322,92914,33341,219

A N N U A L R E P O R T 2 0 0 2 101

11322

32345

44410


A P P E N D I X II

Table II.2Arrangements in Effect During Financial Years Ended April 30, 1991-2002

Financial Number of Arrangements as of April 30

Amounts Committed Under Arrangementsas of April 30

(In millions of SDRs)Year199119921993199419951996199719981999200020012002

Stand-By

14221516192114149

162526

EFF

576697

11131211128

SAF

1284311

PRGF141620222728353335314335

Total

455345475657606056588069

Stand-By

2,7034,8334,4901,131

13,19014,963

3,76428,323

32,74745,60661,30574,344

EFF

9,59712 1598,5694,5046,8409,390

10,18412,33611,4019,7989,7898,697

S A F

539101838049

182

PRGF

1,8132,1112,1372,7133,3063,3834,0484,4104,1863,5164,5764,201

Total

14,65219,20315,2798,428

23,38527,91817,99645,06948,33458,92175,67087,242

102 A N N U A L R E P O R T 2 0 0 2


FINANCIAL OPERATIONS AND TRANSACTIONS

Table II.3Stand-By Arrangements(In millions of SDRs)

MemberArgentina

Bosnia and HerzegovinaBrazilBrazilBulgariaCrotia, Repulic of

EcuadorEstoniaGabon

GuatemelaLatviaLi thuan ia

LithuaniaNigeriaPakistanPanamaPapua New GuineaPeruPeruRomania

Sri LankaTurkeyTurkeyUruguay

UruguayYugoslaviaTotal

in Effect During Financial Year Ended April 30,2002

ArranEffective

date3/10/005/29/9812/2/989/14/012/27/023/19/014/19/00

3/1/0010/23/00

4/1/024/20/01

3/8/008/30/018/4/00

11/29/006/30/003/29/003/12/012/1/02

10/31/014/20/01

12/22/992/4/02

5/31/004/1/02

6/11/01

gement DatesExpiration

date3/9/03

5/29/019/14/01

12/13/022/26/045/18/02

12/31/018/31/014/22/023/31/03

12/19/026/7/01

3/29/0310/31/019/30/013/29/029/28/011/31/022/29/044/29/038/19/022/4/02

12/31/043/31/023/31/045/31/02

AmountsPrior toFY2002

10,58694

13,025——

200227

2993—3362—

789465

6486

128——

2008,676

—150

——

34,906

Approved

In FY2002

6,351——

12,144240

————84——87—————

255300

—6,362

12,821—

594200

39,438

UndrawAt date of

termination

——

3,554————2979——62—

789—64—

128——

—3,299

————

8,004

n BalanceAs of

April 30, 20027,180

——

8,469208200

———8433—87—————

255248

48—

4,627—

47250

21,961


APPENDIX II

104 A N N U A L REPORT 2002

Table II.4Extended Arrangements in Effect During Financial Year Ended April 30, 2002(In millions of SDRs)

Arrangement Dates Amounts Approved Undrawn Balance

Member

BulgariaColombiaIndonesiaJordanKazakhstanMacedoniaUkraineYemenTotal

Effectivedate

9/25/9812/20/99

2/4/004/15/99

12/13/9911/29/00

9/4/9810/29/97

Expirationdate

9/24/0112/19/0212/31/035/31/023/19/02

11/22/019/3/02

10/28/01

Prior toFY2002

6281,9573,638

12832924

1,92073

8,697

In FY2002—

———

—————

At date oftermination

——

——

32923

—26

378

As ofApril 30, 2002

—1,9572,202

61—

—727

—4,947


F I N A N C I A L OPERATIONS AND TRANSACTIONS

Table II.5

Arrangement Dates

Member

AlbaniaArmeniaAzerbaijanBeninBoliviaBurkina FasoCambodia1

CameroonCape VerdeCentral African RepublicChad2

Cote d'IvoireDjiboutiEthiopia3

Gambia, TheGeorgiaGhana4

GuineaGuinea-BissauGuyana5

Honduras6

KenyaKyrgyz Republic7

Lao People's Dem RepLesothoMacedonia, former8

Yugoslav Republic ofMadagascarMalawiMali9

MauritaniaMoldovaMongoliaMozambiqueNicaraguaNigerPakistanRwandaSao Tome and PrincipeSenegalSierra LeoneTajikistanTanzaniaVietnamYemenZambiaTotal

Effectivedate

5/13/985/23/017/6/01

7/17/009/18/989/10/99

10/22/9912/20/004/10/027/20/981/7/00

3/29/0210/18/993/22/016/29/981/12/015/3/995/2/01

12/15/007/15/983/26/998/4/006/6/98

4/25/013/9/01

12/18/003/1/01

12/21/008/6/99

7/21/9912/21/009/28/016/28/993/18/98

12/22/0012/6/016/24/984/28/004/20/989/26/016/24/984/4/00

4/13/0110/29/973/25/99

Expirationdate

7/31/015/22/047/5/04

7/16/036/7/029/9/02

2/28/0312/20/03

4/9/051/19/021/6/03

3/27/0510/17/023/21/04

12/31/011/11/04

11/30/025/1/04

12/14/0312/31/0112/31/02

8/3/0312/5/044/24/043/8/04

11/22/012/29/04

12/20/038/5/03

7/20/0212/20/039/27/046/27/023/17/02

12/21/0312/5/041/31/024/27/034/19/029/25/04

12/24/014/3/03

4/12/0410/28/013/28/03

ThroughApril 30, 2001

45——27

1013959

111—4936—198721

108192—1454

157190

733225

1079454742

111—

87149

59—71

7107—

100135290265254

3,298

In FY2002—6980—————9

—12

293—13——3764————73——

——

5——28———

1,034———

131—————

1,831

At date oftermination

———

——

—

———25—————————29——29——

9—————

——34——10—11—22——26—

195

As ofApril 30, 2002

—59641237

61764

7—16

2341042—815351

9—48

156622314

—57391912922425—34

861—

5—75—35

207—

1502,700

1Extended from 2/5/02.2Augmented by SDR 6 million on 5/16/01 and another million on 1/16/02.3Augmented by SDR 13 million on 3/18/02.4Augmented by SDR 37 million on 6/27/01.5Extended from 7/12/01.6Extended from 10/12/01.7Arrangement expired on 7/25/01. New arrangement started 12/6/01.8Cancelled 11/22/01.9Augmented by SDR 5 million on 7/25/01.

A N N U A L R E P O R T 2 0 0 2 105

Amounts Approved Undrawn Balance

Arrangements Under the Poverty Reduction and Growth Facility in Effect During Financial Year Ended April 30, 2002(In millions of SDRs)


A P P E N D I X I I

FinancialYear

19481949195019511952

19531954195519561957

19581959196019611962

19631964196519661967

19681969197019711972

19731974197519761977

19781979198019811982

19831984198519861987

19881989199019911992

19931994199519961997

19981999200020012002

Purchases1

606119522846

662314939

1,114

666264166577

2,243

580626

1,8972,8171,061

1,3482,8392,9961,1672,028

1,1751,0585,1026,5914,910

2,5033,7202,4334,8608,041

11,39211,5186,2894,1013,685

4,1532,5414,5036,9555,308

8,4655,32510,61510,8704,939

20,00024,0716,3779,59929,194

Trust Fundloans

32

268670962

1,060

SAFloans

139

44529041984125

205014

182

PRGFloans

264408491483

573612573

1,295705

973826513630952

Total

606119522846

662314939

1,114

666264166577

2,243

580626

1,8972,8171,061

1,3482,8392,9961,1672,028

1,1751,0585,1026,5914,942

2,7714,3903,3955,9208,041

11,39211,5186,2894,1013,824

4,5973,0955,3297,5305,916

9,0585,98711,20212,3475,644

20,97324,8976,89010,22930,146

Repurchases

241937

18514527627275

87537522659

1,260

807380517406340

1,1161,5421,6711,6573,122

540672518960868

4,4854,8593,7762,8532,010

1,5552,0182,7304,2896,169

7,9356,2586,0425,4404,768

4,0834,3483,9846,6986,668

3,78910,46522,99311,24319,207

Trust Fundrepayments

18111212413579

528447356168

52475

1

SAF/PRGFrepayments

136112244395524

595627634588777

Total

241937

18514527627675

87537522659

1,260

807380517406340

1,1161,5421,6711,6573,122

540672518960868

4,4854,8593,7762,8532,010

1,5742,1292,9434,7026,749

8,4636,7056,3985,6084,770

4,1194,5134,2317,1007,196

4,38511,09223,62711,83119,984

CreditOutstanding2

133193204176214

1781325572611

1,027898330552

1,023

1,059952

1,4803,0392,945

2,4633,2994,0202,556840

9981,0854,8699,76013,687

12,3669,8439,96712,53617,793

26,56334,60337,62236,87733,443

29,54325,52024,38825,60326,736

28,49629,88936,83742,04040,488

56,02667,17550,37048,66258,698

1Includes reserve tranche purchases.2Excludes reserve tranche purchase.

A N N U A L R E P O R T 2 0 0 2

Table II.6Summary of Disbursements, Repurchases, and Repayments, Financial Years Ended April 30, 1948-2002(In millions of SDRs)

Disbursements Repurchases and Repayments Total Fund

106


FINAKKJSDKDKFJSJ DFKJJFKDJFKFK DJKFKASFK DJFKFJKFJLSKDJ

Table 11.7Wmmmm+mm :tmem'Bm^GGERTRETRTETRERTEWTERTERTE X, Ws&A(In ?!/,•,. FDFFFF /• FFFFD

MEMBERAlbaniaArgentinaArmeniaAzerbaijanBeninBoliviaBosnia/HerzegovinaBrazilBulgariaBurundiBurkina FasoCambodiaCameroon-Cape VerdeCentral M DSFDFF FFDFFFDChadCongo, Republic ofC6te D'lvoireDjiboutiEcuadorEgyptEthiopiaGambia, TheGabonGeorgiaGhanaGuineaGuinea-BissauGuyanaHondurasIndonesiaJordanKenyaKyrgFGF FGFGGGFGFGGFGicLao, PBRLesothoMacedonia (FYR)MadagascarMalawiMaliMauritaniaMoldovaMongoliaMozambiqueNicaraguaNigerPakistanPapua New GuineaRomaniaRwandaSao Tome & PrincipeSenegal . ..Sierra LeoneSri LankaTajikistanTanzania .TurkeyUkraineUruguayVietnamYemenYugoslaviaZambiaTotal

ReserveTranche

—

-——

-—6

————

—-

—

120—————

. ————————

--

——

-——

—————

—-

—

—126

STAND-BY/Credit Trsodhie_

; : -;: '1,529 :

—-

141,960

32

-

—

-—

113——

——

———

—————

——

_—

———

210. ;.. 19

52 . •

———48—

-12,819

—273

150—

17,219

ExtendedFund Facility

•—'—-——

—

52

————

-—

—

—-

——

——

58530——

-———

-

-—•-——

—-

.

—

—291

—

——

9Si

SRF

4,393

————

3,317—-—————— .

—

——

——————————————

. ———

————.————

——————

3,181——

——

10,891

TotalPurchases

5,922_———14

5,27784

6———————

-—

113120

————————

-585

30——————

——————

2101952

———48——

16,000291273

-

150—

29,194

PRGFLoans

5—10164

19—_—

171732

1—21—59

4——41

7—-9

10513——16———1257

—11

1812—48

—17

172—

10—1856—6

40———4169—50

952

T o t a l Fuurdhia§<s$and Loans

55,922

10164

1914

5,27784

6171732

1—21—594

11312041

7—9

10513——16

58530—12

57

—11

1812

-48

-17

382195210—185648

640

16,000291273

4169

15050

30,146

A N N U A L R E P O R T 20 0 2 107


A P P E N D I X II

Table II.8Repurchases and Repayments to the IMF, Financial Year Ended April 30, 2002(In millions of SDRs)

Member

AlbaniaAlgeriaArgentinaArmeniaAzerbaijanBangladeshBelarusBeninBoliviaBosnia/HerzegovinaBrazilBulgariaBurkina FasoBurundiCambodiaCameroonCentral African RepublicChadCongo, Democratic Rep. of theCongo, Republic ofCote d'IvoireCroatiaDjiboutiDominican RepublicEcuadorEquatorial GuineaEstoniaEthiopiaGabonGambia, TheGeorgiaGhanaGuineaGuyanaGuinea BissauHaitiHondurasIndiaIndonesiaJamaicaJordanKazakhstanKenyaKoreaKyrgyz RepublicLao People's Dem. Rep.LatviaLesothoLithuaniaMacedonia (FYR)MadagascarMalawiMaliMauritaniaMexicoMoldovaMongoliaMozambique

Stand-By/Credit Tranche

4—

227—9

12——

—9

3,385181

——

—————3

——

15

———————————

26

—1,651

————

1,924—————

1————

——

——


—139565

—3

——

——————

——

—

—————5

————

——9

—————————

—1444——

—————21——————5

——

CCFFand STF

———6

17—23————51—

—1

—

—————22————4

——

—9

————————————

—5

—8

—84

—————7

——

TotalRepurchases

4139792

6291223——9

3,385232

——

1————3

—27

15

——4

—9

—9

————26

—1,651

1444——

1,9245

—8

—29

5—————12

——

SAF/PRGF andTrust FundRepayments

6——5

—

42

1222———948—

—31

—53————2

—12——8

459

141

—7

—————15—106

—3

———4

1811——6

18

TotalRepurchases

and Repayments

10139792

112954231222

93,385

232949

——313

5327

15

—24

129

—1745

914

12

13—

1,6511444

—15

1,92415683

295

—4

1811—126

18

108 A N N U A L R E P O R T 2 0 0 2




Member

NepalNicaraguaNigerPakistanPanamaPapua New GuineaPeruPhilippinesRomaniaRussiaRwandaSenegalSierra LeoneSlovak RepublicSri LankaSudanTajikistanTanzaniaThailandTogoTunisiaTurkeyUgandaUkraineUruguayUzbekistanVenezuelaVietnamYemenYugoslaviaZambiaZimbabweTotal

Stand-By/Credit Tranche

———40171

—3760—

7—38——18

9—

1,075——

5,784—

203141144—31———

14,809


———24——

13448—

473——————————22—————24—————

1,530

C C F Fand STF

———44————31

2,516

————

7———————83—17—4

————

2,867

TotalRepurchases

———

108171

1348591

2,9897

—38——25

9—

1,075—22

5,784—

286142868

431———

19,207

SAF/PRGF andTrust FundRepayments

341

63———————2422—51——15—8

——29————36——

1661

777

TotalRepurchases

and Repayments

341

171171

1348591

2,9897

2460

5125

915

1,0758

225,784

29286

1428684031—

1661

19,984


Stand-By Arrangements1

Extended ArrangementsSupplemental Reserve FacilityCompensatory and Contingency

Financing FacilitySystemic Transformation Facility

Subtotal (GRA)SAF ArrangementsPRGF Arrangements2

Trust FundTotal

Stand-By Arrangements1

Extended ArrangementsSupplemental Reserve FacilityCompensatory and Contingency

Financing FacilitySystemic Transformation Facility

Subtotal (GRA)SAF ArrangementsPRGF Arrangements2

Trust FundTotal

1994

9,4859,566

3,7562,725

25,5321,4402,812

10529,889

3232—

129

8559

.3

100

1995

15,11710,155

3,0213,848

32,1401,2773,318

10236,837

4128—

81087

39

3

100

1996

20,7009,982

1,6023,984

36,2681,2084,469

9542,040

4924—

49

863

113

100

1997

18,06411,155

1,3363,984

34,539954

4,90490

40,488

4528—

31085

212

3

100

1998

Millions of SD25,52612,521

7,100

6853,869

49,701730

5,50590

56,026

1999

Rs25,21316,57412,655

2,8453,364

60,651565

5,87089

67,175Percent of total

462213

17

891

10__3

100

382519

45

9019

3

100

2000

21,41016,808

3,0322,718

43,968456

5,85789

50,370

4333—

65

871

12__3

100

2001

17,10116,1084,085

2,9921,933

42,219432

5,95189

48,691

35339

64

871

12__3

100

2002

28,61215,538

5,875

7451,311

52,081341

6,18889

58,699

492610

12

111

__3

100

1Includes outstanding credit tranche and emergency purchases.2Includes outstanding associated loans from the Saudi Fund for Development.3Less than 1/2 o f 1 percent total.

110 A N N U A L R E P O R T 2 0 0 2

A P P E N D I X II

Table II.9Outstanding IMF Credit by Facility and Policy, Financial Years Ended April 30, 1994-2002(In millions of SDRs and percent of total)


A N N U A L R E P O R T 2 0 0 2 111

Table II.10Summary of Bilateral Contributions to the PRGF and PRGF-HIPC Trusts(In millions of SDRs; as of April 30, 2002)

TOTALMajor industrial countriesCanadaFranceGermanyItalyJapanUnited KingdomUnited StatesOther advanced countriesAustraliaAustriaBelgiumDenmarkFinlandGreeceIcelandIrelandIsraelKoreaLuxembourgNetherlandsNew ZealandNorwayPortugalSan MarinoSingaporeSpain4

SwedenSwitzerlandFuel-exporting countriesAlgeriaBahrainBrunei DarussalamGabonIran, Islamic Republic ofKuwaitNigeriaOmanQatarSaudi ArabiaTrinidad and TobagoUnited Arab EmiratesVenezuela, Republica Bolivariana deOther developing countriesArgentinaBangladeshBarbadosBelizeBotswanaBrazilCambodiaChileChinaColombiaCyprusDominican RepublicEgypt

PRGF-HIPC TrustSubsidies and HIPC grantcontributions "as needed"1

1,559.1880.5

48.882.2

127.263.6

144 082.2

332.6299.7

24.814.335 318.5

8.06.30.95.91.8

15.90.7

45.41.7

18.56.60.0

16.523.318.337.0

108.75.50.90.12.52.23.1

13.90.80.5

53.51.63.8

20.4227 .1

16.21.70.40.33.1

15.00.04.4

19.70.90.80.51.3

Subsidy contributions"as needed"2

3,496.12,304.9

204.1479.9197.9162 1723.8359.1178.0984.7

14.163.6

123.167.042.140.0

4.67.7—

60.014.4

140.0—

45.55.6—

33.927.0

186 6109.317.9

——

——

2.1—

———

15.7—

——

175 435.0

0.9——

2.4——

4.014.8

———

13.3

P R G F Trust

Loan commitments3

15,676.812,864.8

700.02,900.02,750.01,380.05,134.8

——

2,456.4—

—350.0100.0

——

——

—92.7

—450.0

150.0—

——

712.0—

601.7———

——

—

——

—————

355.6——

——

——

——

200.0—

——

155.6



A P P E N D I X I I


PRGF-HIPC Trust PRGF Trust

FijiGhanaGrenadaIndiaIndonesiaJamaicaLebanonLibyaMalaysiaMaldivesMaltaMauritiusMEXICO

Micronesia, F. S.MoroccoPakistanParaguayPeru

PhilippinesSamoaSouth AfricaSri LankaSt. LuciaSt. Vincent and the GrenadinesSwazilandThailandTongaTunisiaTurkeyUruguayVanuatuVietnamCountries in transitionCroatiaCzech RepublicEstoniaHungaryLatviaPolandRussian FederationSlovak RepublicSlovenia

Subsidies and H I P C grantcontributions "as needed"1

0.10.50.1

22.98.22.70.47.3

12 70.01.10.1

54 50.01.63.40.12.56.70.0

28 60.60.10.10.04.50.01.5—

2.20.10.4

42.90.44.10.56.01.0

12.014.64.00.4

Subsidy contributions"as needed"2 Loan commitments3

1The term "as needed' refers to the nominal undiscounted sum of the projected delivery of HIPC assistance plus the profile of projected subsidy needsfor interim PRGF lending. All calculations are based on an SDR interest rate assumption of 5 percent per annum.

2The calculations are based on actual interest rates through end-2001 and an assumed SDR interest rate of 5 percent per annum thereafter.3 PRGF Trust also includes a loan commitment From the OPEC of US$50 million equivalent to SDR 37 million.4Loan commitments include Spain's pledge of SDR 300 million.

A N N U A L R E P O R T 2 0 0 2

13.66.2——

47.1—

2.2

——

9.84.1

———

—

17.3—

1.911.42.6——

13.3—

13.3——

——

__

———

——

———

—

—

——

——————

—

———

112


FINANCIAL OPERATIONS AND TRANSACTIONS

Table II.11Holdings of SDRs by Participants and by Groups of Countries as Percent of Their Cumulative Allocations of SDRs,at End of Financial Years Ended April 30, 1993-2002

19931994199519961997

19981999200020012002

63.071.090.991.487.2

95.081.184.686.691.5

73.177.9105.1102.499.8

107 094.695.0101.6107.7

41.656 360.467 960 5

69.452.562 554 656.9

166.6222.5263.9285.5303.6

323.7170.7174.1204.2227.9

35.147.749.856.647.856.146.356.646.544.7

4.612.514.117.417.324.126.320.612.414 6

1Consists of member countries that are participants in the SDR Department. At the end of FY2002, of the total SDRs allocated to participants in the SDRDepartment (SDR 21.4 billion), SDR 1.9 billion was not held by participants but instead by the IMF and prescribed holders.

2Based on IFS classification (International Monetary Fund, International Financial Statistics, various years).

A N N U A L R E P O R T 2 0 0 2 113

AllParticipants1

IndustrialCountries2

Net creditorcountries

All nonindustrialcountries

Net debtor countriesAll net debtor Heavily indebted

countries poor countries

Nonindustrial Countries2


A P P E N D I X II

Table II.12Key IMF Rates, Financial Year Ended April 30, 2002(In percent)

1Under the FY2002 decision on burden sharing, the rate of charge was adjusted down ward and the rate of charge was adjusted upward to sharethe burden of protecting the IMF's income from overdue charges and of contributing to the IMF's precautionary balances. The amounts generated fromburden sharing in FY2002 are refundable when overdue charges are paid and when overdue obligations cease to be a problem. The basic rate of charge pre-sented is the effective rate following the retroactive reduction that was implemented after the end of the financial year. The basic rate of charge, which wasset at 117.6 percent of the SDR interest rate, was reduced to 116.4 percent of the SDR interest rate as a result of the retroactive reduction.

114 A N N U A L R E P O R T 2 0 0 2

PeriodBeginning

2001May 1May 7May 14May 21May 28June 4June 11June 18June 25

July 2July 9July 16July 23July 30August 6August 13

August 20August 27

September 3September 10September 17September 24

October 1October 8October 15October 22October 29

SDR Interest Rateand Unadjusted Rate

of Remuneration1

3.783.723.653.583.593.563.533.493.463.563.563.553.523.533.483.423.373.393.343.302.922.612.672.552.602.562.52

Basic Rateof Charge1

4.404.334.254.174.18

4.144.114.064.03

4.144.144.134.104.11

4.053.983.923.95

3.893.843.403.04

3.112.973.032.982.93

PeriodBeginning

November 5November 12November 19November 26December 3December 10December 17December 24December 31

2002January 7January 14January 21January 28February 4February 11February 18February 25March 4March 11March 18March 25April 1April 8April 15April 22April 29

SDR Interest Rateand Unadjusted Rate

of Remuneration1

2.432.262.332.332.252.222.252.242.23

2.222.182.192.252.272.252.262.272.272.292.322.332.322.302.272.272.28

Basic Rateof Charge1

2.832.632.712.712.622.582.622.612.60

2.582.542.552.62

2.642.622.632.642.642.672.702.712.702.682.642.642.65


AlgeriaAntigua and BarbudaArgentinaArmeniaAustralia

AustriaBahamas, TheBahrainBangladeshBarbados

BelarusBelgiumBelizeBeninBolivia

BotswanaBrazilBrunei DarussalamBulgariaBurkina Faso

CambodiaCameroonCanadaCentral African RepublicChad

ChileChinaComorosCongo, Republic ofCosta Rica

Cote d'lvoireCroatiaCyprusCzech RepublicDenmark

DjiboutiDominicaDominican RepublicEcuadorEl Salvador

Equatorial GuineaEstoniaFijiFinlandFrance

GabonGambia, TheGeorgiaGermanyGhana

GreeceGrenadaGuatemalaGuineaGuinea-Bissau

September 15, 1997November 22, 1983May 14, 1968May 29, 1997July 1, 1965

August 1, 1962December 5, 1973March 20,1973April 11,1994November 3, 1993

November 5, 2001February 15, 1961June 14, 1983June 1, 1996June 5, 1967

November 17, 1995November 30, 1999October 10, 1995September 24,1998June 1,1996

January 1,2002June 1, 1996March 25, 1952June 1, 1996June 1, 1996

July 27, 1977December 1, 1996June 1, 1996June 1, 1996February 1, 1965

June 1, 1996May 29, 1995January 9, 1991October 1, 1995May 1, 1967

September 19, 1980December 13, 1979August 1, 1953August 31, 1970November 6, 1946

June 1,1996August 15, 1994August 4,1972September 25, 1979February 15,1961

June 1, 1996January 21, 1993December 20, 1996February 15, 19611 biliary 21, 1994

July 7, 1992January 24, 1994January 'X7, 1947November 17, 1995January 1, 1997

GuyanaHaitiHondurasHungaryIceland

IndiaIndonesiaIrelandIsraelItaly

JamaicaJapanJordanKazakhstanKenya

KiribatiKoreaKuwaitKyrgyz RepublicLatvia

] cbanonLesothoLithuaniaLuxembourgMacedonia, FYR

MadagascarMalawiMalaysiaMaliMalta

Marshall IslandsMauritaniaMauritiusMexicoMicronesia, Federated States of

MoldovaMongoliaMoroccoNamibiaNepal

NetherlandsNew ZealandNicaraguaNigerNorway

OmanPakistanPalauPanamaPapua New Guinea

ParaguayPeruPhilippinesPolandPortugal

December 27, 1966December 22, 1953July 1, 1950January 1, 1996September 19,1983

August 20, 1994May 7, 1988February 15, 1961September 21, 1993February 15, 1961

February 22, 1963April 1, 1964February 20, 1995July 16, 1996June 30, 1994

August 22, 1986November 1,1988April 5, 1963March 29, 1995June 10, 1994

July 1,1993March 5, 1997May 3, 1994February 15, 1961June 19, 1998

September 18, 1996December 7, 1995November 11, 1968June 1,1996November 30, 1994May 21, 1992July 19, 1999September 29, 1993November 12, 1946June 24, 1993

June 30, 1995February 1, 1996January 21, 1993September 20, 1996May 30, 1994

February 15, 1961August 5, 1982July 20, 1964June 1,1996May 11, 1967

June 19,1974July 1, 1994December 16,1997November 26, 1946December 4, 1975

August 22, 1994February 15,1961September 8, 1995June 1,1995September 12, 1988

MemberEffective Dateof Acceptance Member

Effective Dateof Acceptance


Table 11.13Members That Have Accepted the Obligations of Articel VIII, Sections 2, 3, and 4 of the Articles of Agreement

175


A P P E N D I X II


Member

QatarRomaniaRussian FederationRwandaSt. Kitts and NevisSt. LuciaSt. Vincent and the GrenadinesSamoaSan MarinoSaudi ArabiaSenegalSeychellesSierra LeoneSingaporeSlovak RepublicSloveniaSolomon IslandsSouth AfricaSpainSri Lanka


June 4, 1973March 25, 1998June 1, 1996December 10, 1998December 3, 1984May 30, 1980August 24, 1981October 6, 1994September 23, 1992March 22, 1961June 1, 1996January 3, 1978December 14, 1995November 9, 1968October 1, 1995September 1, 1995July 24, 1979September 15, 1973July 15, 1986March 15, 1994

Member

SurinameSwazilandSwedenSwitzerlandTanzania

ThailandTogoTongaTrinidad and TobagoTunisiaTurkeyUgandaUkraineUnited Arab EmiratesUnited KingdomUnited StatesUruguayVanuatuVenezuela, Republica Bolivariana deYemen, Republic ofZambiaZimbabwe


June 29, 1978December 11, 1989February 15, 1961May 29, 1992July 15, 1996May 4, 1990June 1, 1996March 22, 1991December 13, 1993January 6, 1993March 22, 1990April 5, 1994September 24, 1996February 13, 1974February 15, 1961December 10, 1946May 2, 1980December 1, 1982July 1, 1976December 10, 1996April 19, 2002February 3, 1995

116 ANNUAL R E P O R T 2 0 0 2



Table II. 14Exchange Rate Arrangement and Anchors of Monetary Policy as of December 31, 2001

The classification system, in effect since 1999, is based on the mem-bers' actual, de facto, regimes that may differ from their officiallyannounced arrangements. The scheme ranks exchange rate regimeson the basis of the degree of flexibility of the arrangement. Itdistinguishes between the more rigid forms of pegged regimes (suchas currency board arrangements); other conventional fixed pegregimes against a single currency or a basket of currencies; exchangerate bands around a fixed peg; crawling peg arrangements; andexchange rate bands around crawling pegs, in order to help assessthe implications of the choice of exchange rate regime for thedegree of independence of monetary policy. This includes a cate-gory to distinguish the exchange arrangements of those countriesthat have no separate legal tender. The system presents members'exchange rate regimes against alternative monetary policy frame-works with the intention of using both criteria as a way of providinggreater transparency in the classification scheme and to illustratethat different forms of exchange rate regimes could be consistentwith similar monetary frameworks. The following explains thecategories.

Exchange Rate RegimesExchange Arrangements With No Separate Legal TenderThe currency of another country circulates as the sole legal tender, orthe member belongs to a monetary or currency union in which thesame legal tender is shared by the members of the union. Adoptingsuch regimes is a form of surrendering the monetary authorities'independent control over domestic monetary policy.

A monetary regime based on an explicit legislative commitment toexchange domestic currency for a specified foreign currency at a fixedexchange rate, combined with restrictions on the issuing authority toensure the fulfillment of its legal obligation. This implies that domes-tic currency be issued only against foreign exchange and that itremain fully backed by foreign assets, eliminating traditional centralbank functions such as monetary control and the lender of the lastresort and leaving little scope for discretionary monetary policy; someflexibility may still be afforded depending on how strict the rules ofthe boards are established.

Other Conventional Fixed Peg ArrangementsThe country pegs (formally or de facto) its currency at a fixed rate toa major currency or a basket of currencies, where a weighted com-posite is formed from the currencies of major trading or financialpartners and currency weights reflect the geographical distribution oftrade, services, or capital flows. In a conventional fixed peg arrange-ment, the exchange rate fluctuates within a narrow margin of lessthan ±1 percent around a formal or de facto central rate. The cur-rency composites can also be standardized, such as those of the S D Rand the E C U . The monetary authority stands ready to maintain thefixed parity through intervention, limiting the degree of monetarypolicy discretion; the degree of flexibility of monetary policy,however, is greater relative to CBAs or currency unions, in thattraditional central banking functions are, though limited, still possi-ble, and the monetary authority can adjust the level of the exchangerate, though infrequently.

Pegged Exchange Kates Within Horizontal BandsThe value of the currency is maintained within certain margins offluctuation of at least ±1 percent around a formal or a de facto fixedcentral rate. It also includes the arrangements of the countries in theexchange rate mechanism (ERM) of the European Monetary System(EMS) (replaced with E R M - I I on January 1, 1999). There is somelimited degree of monetary policy discretion, with the degree of dis-cretion depending on the band width.Crawling PegsThe currency is adjusted periodically in small amounts at a fixed rateor in response to changes in selective quantitative indicators (pastinflation differentials vis-a-vis major trading partners, differentialsbetween the target inflation and expected inflation in major trading

partners, etc). The rate of crawl can be set to generate inflationadjusted changes in the currency ("backward looking"), or at a pre-announced fixed rate below the projected inflation differentials("forward looking"). Maintaining a credible crawling peg imposesconstraints on monetary policy in a similar manner as a fixed pegsystem.Exchange Rates Within Crawling BandsThe currency is maintained within certain fluctuation margins of atleast ±1 percent around a central rate, which is adjusted periodicallyat a fixed rate, or in response to changes in selective quantitativeindicators. The degree of flexibility of the exchange rate is a functionof the width of the band, with bands chosen to be either symmetricaround a crawling central parity or to widen gradually with an asym-metric choice of the crawl of upper and lower bands (in the lattercase, there is no preannouncement of a central rate). The commit-ment to maintain the exchange rate within the band continues toimpose constraints on monetary policy, with the degree of policyindependence being as a function of the band width.

Managed Floating With No Predetermined Path for theExchange RateThe monetary authority influences the movements of the exchangerate through active intervention in the foreign exchange marketwithout specifying, or precommitting to, a regular preannouncedpath for the exchange rate. Indicators for managing the rate arebroadly judgmental, including, for example, the balance of paymentsposition, international reserves, parallel market developments, andthe adjustments may not be automatic.Independent FloatingThe exchange rate is market determined, with any foreign exchangeintervention aimed at moderating the rate of change and preventingundue fluctuations in the exchange rate, rather than at establishing alevel for it. In these regimes, monetary policy is in principle indepen-dent of exchange rate policy.

Monetary Policy FrameworkMembers' exchange rate regimes are presented against alternativemonetary policy frameworks in order to present the role of theexchange rate in broad economic policy and help identify potentialsources of inconsistency in the monetary-exchange rate policy mix.Exchange Rate AnchorThe monetary authority stands ready to buy/sell foreign exchange atgiven quoted rates to maintain the exchange rate at its preannouncedlevel or range (the exchange rate serves as the nominal anchor orintermediate target of monetary policy). These regimes coverexchange rate regimes with no separate legal tender, CBAs, fixedpegs with and without bands, and crawling pegs with and withoutbands, where the rate of crawl is set in a forward-looking manner.

Monetary Aggregate AnchorThe monetary authority uses its instruments to achieve a targetgrowth rate for a monetary aggregate (reserve money, M l , M 2 , etc.)and the targeted aggregate becomes the nominal anchor or interme-diate target of monetary policy.Inflation Targeting FrameworkInvolves the public announcement of medium-term numerical tar-gets for inflation with an institutional commitment by the monetaryauthority to achieve these targets. Additional key features includeincreased communication with the public and the markets about theplans and objectives of monetary policymakers and increasedaccountability of the central bank for obtaining its inflation objec-tives. Monetary policy decisions are guided by the deviation offorecasts of future inflation from the announced inflation target, withthe inflation forecast acting (implicitly or explicitly) as the intermedi-ate target of monetary policy.

IMF-Supported or Other Monetary ProgramInvolves implementation of monetary and exchange rate policywithin the confines of a framework that establishes floors for interna-

A N N U A L R E P O R T 2 0 0 2 117

Classification of Exchange Rate Regimes


APPENDIX II

tional reserves and ceilings for net domestic assets of the centralbank. As the ceiling on net domestic assets limits increases in reservemoney through central bank operations, indicative targets for reservemoney may be appended to this system.

OtherThe country has no explicitly stated nominal anchor, but rathermonitors various indicators in conducting monetary policy, or thereis no relevant information available for the country.

Monetary Policy Framework1'2

ExchangeBate Regime(number ofcountries)

Exchangearrangementswith no separatelegal tender (40)

Currency boardarrangements (8)

Other conventionalfixed pegarrangements(including de factopeg arrangementsunder managedfloating) (41)

Pegged exchangerates withinhorizontal

bands (5)10

Exchange r

Anothercurrency aslegal tender ECCU3

Ecuador t Antigua andEl Salvador13 Barbuda

iribati DominicaMarshall Grenada

Islands St. Kitts andMicronesia NevisPalau St. LuciaPanama St. VincentSan Marino and the

GrenadinesArgentinatBosnia and Herzegovina+

Brunei DarussalamBulgaria^China: Hong Kong, SARDjibouti'i"EstoniaLi :hua liatAgainst a single currency (iArubaBahamas, The6

» BahrainBangladeshBarbadosBelizeBhutanCape VerdeChina, People's Rep. of*7

Comoros9

EriteaIran, Islamic Rep. of6'7Jordant7

Lebanon7 ^Lesotho*Macedonia, FYRi'7MalaysiaMaldives7

NamibiaNepalNetherlands AntillesOmanQatar7'8Saudi Arabia7'8Sudan7

Suriname6'7SwazilandSyrian Arab Republic6

Turkmenistan7

United Arab Emirates7'8Zimbabwe7

Within a cooperativearrangement

ERMII(l)Denmark

ate anchor

CJFAjrmWAEMUBenintBurkina FasotCote d'lvoiretGuinea-BissautMalitNigertSenegaltTogo

M) Against a tBotswana6

FijiKuwaitLatviatLibyan A.J.MaltaMoroccoSamoaSeychellesVanuatu

Other bandarrangements

Monetaryaggregate

target

ic zoneCAEMCCameroon*Central African

Rep.tChadtCongo, Rep. oftEquatorial

GuineaGabont

wmposite (10) China,People'sRep. of*7

(4)Cyprus Hungary*Egypt6 Tonga

Inflation-targeting

framework

Hungary*

IMF-supportedor other

monetaryprogram Other

Euro ®resfi->5

AustriaBelgiumFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsPortugalSpain

A N N U A L R E P O R T 2 0 0 2118


£.HF>RR Hi ;R M S RRRRRR ISRR> M i;

Table 11.14 (concluded)

Monetary Policy Framework1 '2

exchangeRate Regime(number ofconmteaes)

CmwMimg pegs (4)

Exchange rateswithin crawlingbands (6)11

RJTKTRTged fEoattiimgw i t h M© pire-smmQun *̂ >] ilfoir exdh&inigerate (42)

ledepeadee t lyiBloatflBg (4©)

exchangeBoliviatCosta Rica 7

NicaraguatSolomon Islands6

BelarusHondurastIsrael*

e rate asiclhoir

Romaniat7

UruguaytVenezuela, Rep. Bol. de

Monetaryaggregate

target

GhanatGulneatGuyanatIndonesiatJaroaicat7MauritiusMongolia's'Sao Tome and

PrincipetSloveniaSri LankatTunisia

Gambia, ThetMalawitPerutPhilippinestSierra LeonetTurkey!Yemeni'

Inflation-targeting

framework

Israel*

Thailand*

AustraliaBrazil!CanadaChile6

ColombiatCzech Rep.IcelandKoreaMexicoNew ZealandNorwayPolandSouth AfricaSwedenUnited

Kingdom

IMF-supportedor othermonetaryprogram

AzerbaijanCambodia6

CroatiaEthiopia''- Toikhstan

Kenya'/ /."-public

Lao PDR6

Mauritaniai i i ; . in"

PakistanRussian

FederationRTRWETET

Trinidad Sr.Tobago

UkraineVietnamftj Z'Z 1 k no.ZambiaAlbaniaArmenia

Z ' • \TRETTRep.

Georgia"' -; ?JMoldovaMozambiqueTajikistanTanzaniaUganda

Other

Alge r i a 4

/ , '£ I'jvoindi4

DFFFSFDFAFFSF'-'/'-G i :en alaÎndia4

t, ,12, ' t - ,6,7

Paraguay4

;#Mgipdre^^ : : : •n V Rep.4

Uzbekistan4^6

I '- ' . ' . . ' r -, '

Haiti4

Japan4

Liberia4

RTRTETRT RTTETRTRG u i n e a 4

Somal ia 6 ' 1 2

RTWTTTWTETRTRTRU n i t e d States4

Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itLeo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it

Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itdfafdfasfafafsfafssepa-Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it

Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfa fa f fa fas fas fas f ' L nay guide monetary poliqÎt should be noted, however, that itLeo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it


Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itLeo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itLeo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itLeo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it8Exchange rates more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that itecause of the maintenance of


Leo, dfasfasfafi -afdfadff- "- s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that its that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it and Venezuela (±7.5%).s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it and Venezuela (±7.5%).s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it and Venezuela (±7.5%).long

s that the country has more than one AFdfafaffafasfasfasf'Lnay guide monetary poliqÎt should be noted, however, that it and Venezuela (±7.5%).

A N N U A L R E P O R T 2 0 0 2 119

: •R ;RR^R• W • c s / - . i RRRR uRRR 1 •RRJ f H S


olicy Decisions of the Executive Board

A. Access Policy and Limits un Credit Tranches andUnder Extended Fund Facility — Extension ofDeadline for Completion of ReviewThe Fund decides that the next annual review of the guide-lines and limits for access to the Fund's general resources inthe credit tranches and under the Extended Fund Facility pre-scribed by paragraph 2 of Decision No. 11876-(99/2),1 asamended by Decision No. 12385-pleted by August 31, 2001.Decision No. 12517- (01/68)

(00/129),2 shall be com-

(a) Disoosition of Net Income for FY20021. SDR 51 million of the Fund's net income for FY2002

derived from the application of paragraph 2 of Decision No.12464-(01/39),3 adopted April 16, 2001, shall be placed to

tional Accounting Standard 19—Employee Benefits duringFY2002 shall be charged against the Fund's Special Reserveand shall be recorded separately in the financial records of theFund.

April 26, 2002

(b) Rote of Chare on Use of Fund Resources f orFY2003

1. Notwithstanding Rule I-6(4)(a), effective May 1, 2002,the proportion of the rate of charge referred to in Rule 1-6(4) tothe SDR interest rate under Rule T-l shall be 128.0 percent.

2. The net income target for FY2003 shall be SDR 69million. Any net income for financial year 2003 in excess ofSDR 69 million shall be used to reduce retroactively the pro-portion of the rate of charge for financial year 2003. If netincome for financial year 2003 is below SDR 69 million, theamount of projected net income for financial year 2004 shallbe increased by the equivalent of that shortfall. For the pur-pose of this provision, net income shall be calculated withouttaking into account net operational income generated by thesurcharges on purchases under the Supplemental ReserveFacility and Contingent Credit Lines, the surcharge on pur-

^See Selected Decisions, Twenty-Sixth Issue (December 31, 2001),page 240.

2Ibid., page 241.3Ibid., pages 362-63.

chases in the credit tranches and under the Extended FundFacility or the effect on income of the implementation ofInternational Accounting Standard 19—Employee Benefits.Decision No. 12730-(02/43)April 26, 2002

For financial year 2003, after meeting the cost of administer-ing the PRGF Trust, any remaining net operational incomegenerated by the surcharges on purchases under the Supple-mental Reserve Facility and the Contingent Credit Lines andthe surcharges on purchases in the credit tranches and underthe Extended Fund Facility shall be transferred, after the endof that financial year, to the General Reserve.Decision No. 12733-(02/43) SRF/CCLApril 26, 2002

C. Post-Condlicct Emergency AssistanceDAGFGAFGDFGASFASDFASDFSFDFASFASDFASFASFSFFAF

(a) Administered Account to Subsidize Post-ConflictADFEmergency Assistance to Poverty Reduction andGrowth Facility-Eligible Menberss--EstablishmentDASFASFASFFFPursuant to Article V, Section 2(b), the Fund adopts theInstrument to Establish an Account ("The Post-ConflictEmergency Assistance Subsidy Account for PRGF-EligibleMembers") to subsidize the rate of charge on post-conflictpurchases made by PRGF-eligible members under DecisionNo. 12341-(00/117),4 November 28, 2000, which isannexed to this Decision.Decision No. 12481-(01/45)May 4, 2001

ANNEX: Instrument to Establish the Post-ConflictEmergency Assistance Subsidy Account for

PRGF-Eligible MembersTo help fulfill its purposes, the International Monetary Fund(the "Fund") has adopted this Instrument to establish anaccount in accordance with Article V, Section 2(b) (the"Account") which shall be governed by, and administered inaccordance with, the following provisions:

The purpose of the Account shall be the administration ofresources provided to the Account by Contributors for the

4Ibid., page 222.

A N N U A L R E P O R T 2 0 0 2

III

June 29, 2001

MF's Income Position

the Fund's Special Reserve after the end of the financial year.2. The expense derived from the application of Interna-

Decision No. 12729-(02/43)

120

Paragraph 1. Purpose of the Account

Disposition of Net Operating Income

(c) Surcharges on Purchases Under SupplementalReserve Facility and Contingent credit Lines, and inCredit Tranches and Under Extenede Fund Facility---

A P P E N D I X

PRINCIPAL P

.0,

fcl


P R I N C I P A L P O L I C Y D E C I S I O N S O F T H E E X E C U T I V E B O A R D

subsidization of the rate of charge on post-conflict emergencyassistance purchases made by PRGF-eligible members underDecision No. 12341-(00/117),5 November 28, 2000("eligible purchases"). A member is PRGF-eligible if it isincluded in the list of members annexed to DecisionNo. 8240-(86/56) SAF.6

Paragraph 2. Resources of the AccountThe resources held in the Account shall consist of:

(i) grant contributions made to the Account for thepurposes of paragraph 1;

(ii) loans, deposits, and other types of investmentsmade by Contributors to the Account to generateincome to be used for the purposes of paragraph 1;and

(iii) net earnings from the investment of resources heldin the Account.

Paragraph 3. Contributions to the AccountThe Fund may accept contributions of resources to theAccount on such terms and conditions as may be agreedbetween the Fund and the respective contributors, subject tothe provisions of this Account. For this purpose the Manag-ing Director is authorized to accept grants and enter intoloan, deposit, or other type of investment agreements withthe Contributors to the Account.

Paragraph 4. Unit of AccountThe S D R shall be the unit of account.

Paragraph 5. Media of Payment of Contributions andExchange of Resources

(a) Resources provided to the Account shall be in anyfreely usable currency or such other media as may beagreed by the Fund and the Contributor.

(b) Resources held in the Account may be currencies orcurrencies exchanged for SDRs in accordance withsuch arrangements as may be made by the Fund forthe holding and use of SDRs.

(c) The Fund may exchange any of the resources held inthe Account provided that any balance of a currencyheld in the Account may be exchanged only with theconsent of the issuer of such currency.

(d) Payments made from the Account shall be made inSDRs or such other media as may be determined bythe Fund.

Paragraph 6. Use of the Resources(a) The resources of the Account (including any net

income from the investment of such resources) shallbe used to provide grants to PRGF-eligible membersthat have made post-conflict emergency purchasesunder Decision No. 12341-(00/117)7 ("eligiblerecipients"), in order to subsidize to an annual rate of0.5 percent the rate of charge payable to the Fund onthe Fund's holding of the member's currency result-ing from those purchases. Only charges payable afterthe establishment of the Account will be eligible forsubsidization.

5Ibid.6Ibid., pages 374-81.7Ibid., page 222.

(b) The grants will be made available to eligible recipientsat the same time as quarterly charges on eligible pur-chases fall due, subject to the availability of adequateresources in the Account, in an amount sufficient toreduce that quarterly rate of charge to 0.5 percent onan annual basis. If, in any quarter, the resources of theAccount are insufficient to subsidize the rate ofcharge on all eligible purchases to 0.5 percent for thatquarter, the subsidy to each eligible recipient shall beprorated to bring the effective rate of charge paidafter subsidization to the closest common percentageto 0.5 percent.

(c) Earmarked resources contributed to the Accountshall be used in accordance with the terms agreedwith the Contributor and shall not be taken into con-sideration in the determination of the grant subsidyunder subparagraph (b) above. A n eligible recipientbeneficiary of earmarked resources shall not receive alower grant subsidy than provided under subpara-graph (b) above.

Paragraph 7. Authority to Invest Resources in the Account(a) Resources held in the Account and not immediately

needed for operations of the Account shall be investedat the discretion of the Managing Director, subject tothe provisions of subparagraph (c).

(b) The Managing Director is authorized (i) to make allarrangements, including the establishment ofaccounts in the name of the Fund, with such deposi-tories as he deems necessary to carry out theoperations of the Account, and (ii) to take all othermeasures he deems necessary to implement the provi-sions of this Instrument.

(c) Investments may be made in any of the following:(i) marketable obligations issued by an internationalfinancial organization and denominated in SDRs or inthe currency of a member of the Fund; (ii) marketableobligations issued by a member or by a nationalofficial financial institution of a member anddenominated in SDRs or in the currency of that mem-ber; and (iii) deposits with a commercial bank, anational official financial institution of a member, oran international financial institution that are denomi-nated in SDRs or in the currency of a member.

Paragraph 8. Administration of the Account(a) Assets held in the Account shall be kept separate from

the assets and property of all other accounts of, oradministered by, the Fund. The assets and propertyheld in such other accounts shall not be used to dis-charge or meet any liabilities, obligations, or losses ofthe Fund incurred in the administration of theAccount; nor shall the assets of the Account be usedto discharge or meet any liabilities, obligations, orlosses incurred by the Fund in the administration ofsuch other accounts.

(b) The Fund shall maintain separate financial records andprepare separate financial statements for the Account.The financial statements for the Account shall beexpressed in SDRs and prepared in accordance withInternational Accounting Standards.

(c) The external audit firm selected under Section 20 ofthe Fund's By-Laws shall audit the operations and


A P P E N D I X I I I

transactions conducted through the Account. Theaudit shall relate to the financial year of the Fund.

(d) The Fund shall report on the resources and positionof the Account in the Annual Report of the ExecutiveBoard to the Board of Governors and shall include inthat Annual Report the audit report of the externalaudit firm on the Account.

(e) Subject to the provisions of this Instrument, theFund, in administering the Account, shall apply,mutatis mutandis, the same rules and procedures asapply to operations of the General Resources Accountof the Fund.

Paragraph 9. Fees(a) No charge shall be levied in respect of the services

rendered by the Fund in the administration, opera-tion, and termination of this Account.

(b) Al l investment costs, including but not limited tocosts associated with the exchange of currencies, pur-chase of securities, and hiring of external assetmanagers and custodian banks, shall be borne by, anddeducted from, the Account.

Paragraph 10. Termination(a) The Account may be terminated at any time by the

Fund.(b) Termination shall be effective on the date that all

Contributors have received a notice of termination oron such later date, if any, as may be specified in thenotice of termination.

(c) Any balance remaining in the Account on the date ofits termination and after discharge of all obligations ofthe Account shall be transferred promptly to each ofthe Contributors in the proportion that the S D Requivalent of its respective Contribution bears to thetotal Contributions; except that:(i) in the case of earmarked Contributions that have

been fully used, no such transfer shall be made,and

(ii) a Contributor may instruct that its share or a spec-ified portion thereof be utilized for such otherpurposes as may be mutually agreed between theContributor and the Managing Director.

Paragraph 11. AmendmentsThe provisions of this Instrument may be amended by a deci-sion of the Fund. Should the Fund amend the terms andconditions of this Instrument, each Contributor shall havethe right to withdraw its individual unused Contribution inthe proportion that the SDR equivalent of its respective Con-tribution bears to the total Contributions.

Paragraph 12. Settlement of QuestionsAny question arising under this Instrument shall be settled bymutual agreement between the Fund and the Contributors.

(b) Administered Account to Subsidize Post-ConflictEmergency Assistance to Poverty Reduction andGrowth Facility-Eligible Members—Use of SDRsIn accordance with Article XVII , Section 3, the Fund pre-scribes that (i) a participant or a prescribed holder, byagreement with a participant or a prescribed holder and at theinstruction of the Fund, may transfer SDRs to that participantor prescribed holder in effecting a transfer to or from "the

Post-Conflict Emergency Assistance Subsidy Account forPRGF-Eligible Members" or in effecting a payment due to orby the Fund in connection with financial operations under"the Post-Conflict Emergency Assistance Subsidy Account forPRGF-Eligible Members," (ii) operations pursuant to theseprescriptions shall be recorded in accordance with Rule P-9.Decision No. 12482-(01/45) SMay 4, 2001

D. Poverty Reduction and Growth Facility (PRGF)

(a) Overdue Financial Obligations—ProceduresApplicable to PRGF Trust(See Section E below, subsection (c) for the full text of thisdecision).

(b) PRGF Trust Borrowing for Loan Account—Consultation with CreditorsThe Managing Director, after having consulted with all credi-tors in accordance with Decision No. 12032-(99/87)PRGF, 8 adopted August 2, 1999, is authorized to confirmthat he does not intend to propose to the Executive Boardborrowing of more than SDR 16 billion for the LoanAccount of the Poverty Reduction and Growth Facility Trustexcept after consultation with all creditors regarding the justi-fication for such additional borrowing and the adequacy ofthe Trust's Reserve in relation thereto.Decision No. 12559-(01/85) PRGFAugust 23, 2001, effective September 23, 2001

(c) PRGF Trust Instrument—Amendment1. The following changes shall be made to the Instru-

ment of the Poverty Reduction and Growth Facility Trustestablished by Decision No. 8759-(87/176) PRGF, 9 adoptedDecember 18, 1987:

(i) In Section II, paragraph 1(d), "December 31, 2006"shall be substituted for "December 31, 2001";

(ii) In Section III, paragraph 3, the following new sen-tence shall be added after the first sentence:

"The drawdown period under loan agreements tothe Loan Account of the PRGF Trust for interimPRGF financing shall extend through December31, 2009."

(iii) In Section III, paragraph 4(a), "August 31, 2001"shall be substituted for "November 30, 1993";

(iv) In Section III, paragraph 4(b), the following lan-guage shall be added after the second reference to"November 30, 1993,": "or prior to June 30, 2009,in case of a commitment under a loan agreemententered into after August 31, 2 0 0 1 , . . . "

(v) In Section IV, "paragraph 1(d)" shall become "para-graph l(e)" and the following new "paragraph 1(d)"shall be added:

"(d) transfers from the Trust for Special PRGFOperations for the Heavily Indebted Poor Coun-tries and Interim PRGF Subsidy Operations(PRGF-HIPC Trust) in accordance with SectionIII bis of that Trust Instrument; and . . . "

8Ibid., page 80.9Ibid., page 43.

122 A N N U A L R E P O R T 2 0 0 2



Decision No. 12560-(01/85) PRGFAugust 23, 2001, effective September 19, 2001

The following changes shall be made to the Instrument of theTrust for Special PRGF Operations for the Heavily IndebtedPoor Countries and Interim PRGF Subsidy Operationsestablished by Decision No. 11436-(97/10),10 adopted

(i) In Section I, paragraph l(vii), "December 31, 2001"shall be substituted for "December 31, 2000" and"2001/02-2006" for "2000/01-2004";

(ii) The following Section III bis shall be added afterSection III:

"Section III bis. Subsidies for Interim PRGFOperationsFor purpocwereerer ion I, paragraph 2(b) of thisInstrument, and to the extent that reerrrerrer n theSubsidy Account of the PRGF Trusterwrwrre ficientfor interim PRGF subsidy operations, the Trusteeshall transfer to the Subsidy Account of the PRGFTrust, as needed, resources in the Trust Accountnot earmarked for assistance under Section III ofthis Instrument. Any such transfers shall be limitedto the amounts needed foirtetrwtwttrwetetetttrr

Decision No. 12561-(01/85) PRGFAugust 23, 2001

(e) PRGF Tivsr and PRGWC Trust-ReserveAccount--ReviewPursuant to Decision no. 10286-(93/23) ESAF,11 the Fund

has reviewed the adeuacy of the Reserve Account of thePRGF Trust, and determines that amounts held in theaccount are suffient to meet all olrise to a payment from the ReserveLoan Account of the PRGF Trust iOctober 1, 2001 to March 31, 20(

-(01/93) PRGFSeptember 12, 2001

(f) PRGF-HIPC Trust-AmendThe Instruument to Establish a TruOperations for the Heavily Indebt<Interim PRGF Subidy OperationsNo. 11436-(97 / /10) , 1 2 adopted Fc

amended as follows:(a) The following sentence shal

the end of paragph l(v):"For the purposes of these calculations, amountsthat are subject to an early repurchase or repaymentexpectation established under the Misreporting

»Guidelines shall not constitute external debt."(b) The following shall be added in Section I as a new

could givelers to thefrom

(annexed to Decisionbruary 4, 1997) is

1 be added in Section I at

"Misreporting Guidelines means the Guidelines onCorrective Action for Misreporting and Noncom-plying Purchases in the General Resources Account(Decision No. 12249-(00/77),13 adopted July 27,2000), and the Provisions on Corrective Action forMisreporting and Noncomplying Disbursements inArrangements under the Poverty Reduction andGrowth Facility (Appendix I of the Instrument toEstablish the Poverty Reduction and Growth Facil-ity Trust annexed to Decision No. 8759-(87/176)ESAF,14 adopted December 18, 1987)."

(c) The following sentence shall be added after the firstsentence of Section III, paragraph 3(e):

"To the extent that the Trustee, in determining theamount committed to the memerewrerrwrrwrwer3(b) above, included in the member's external debtamounts that, after the decision point, were foundto be subject to an early repurchase or repaymentexpectation under the Misreporting Guidelines, theTrustee shall recalculate and adjust the amount ofits commitment, excluding from the member'sexternal debt the amount that was subject to therewqrerwerrrerererr nent expectation."

Decision No. 12680-(02/17) PRGFFebruary 20, 2002

The Instrument to Establish a Trust for Special PRGF Opera-tions for the Heavily Indebted Poor Countries and InterimPRGF Subsidy Operations (Decision No. 11436-(97/10)15

shall be amended as follows:1. In Section III, paragraph 3(b), the following new sen-

tences shall be added at the end of the paragraph:"The Trustee shall, subject to the conditions z;. vdffffsfbelow, adjust the amount of assistance cofafsfasffd to amember under this provision, whether or not disbursedto the account established under paragraph 5 below, ifthe Trustee, on the basis of revised information, recal-culates the member's debt sustainability position usedfor the purposes of reaching the decision point anddetermines that the recalculated amount of relief to beprovided under the Initiative exceeds or falls short ofthe amount originally committed by more than onepercentage point of the targeted net present value ofdebt as defined in Section I, paragraph l(v) above. Insuch circumstances, the amount of the commitmentshall be increased or reduced as necessary to reach theamount to which the member, on the basis of suchrecalculation, would be entitled under the terms of thisInstrument. No such adjustment shall be made: (i) afterthe completion point; or (ii) in the case of an edfafafmore than one percentage point, if such excess is attrib-utable to incorrect information on exports, grossdomestic product, or fiscal revenues that was not pro-vided by or at the behest of the member. If the amount

13Ibid., pages 188-90.i^ibid., page 43.i5lbid.,page81.

A N N U A L R E P O R T 2 0 0 2 123

hallbecome effective when all lenders to the PRGF Trust haveconsented to the chanees proposed therein.

(d) PRGF-HIPC Trust Instrument--Amendment

Febuary 4, 1997:

ligations whichaxccount to lendn the six months2.

d Poor Countries andfgsdgadgadfafaffa

10Ibid., page 81.11Ibid., pages 390-91.

12Ibid., page 81 .

(g) Instructuion to Establish trust for special PRGFOperations for Heaviv indebted Poor Countries and

Interim PRGF Subsidy Operations--Amensdedafdff

paragraph 1(x):

2. Paragrapfafafffasfsgfsfsffafsfsfsff:s decision sh

il'lE

12568Oecisiond

2Ibie


already disbursed by the Trustee to the account estab-lished under paragraph 5 below for the benefit of themember exceeds the adjusted amount of assistance, theTrustee shall retransfer to the Trust any amountremaining in the account equivalent to such excess."

2. In Section III, paragraph 3 (d), the following newsentences shall be added at the end of the paragraph:

"Where the Trustee has made a disbursement ofresources under this paragraph to the account estab-lished under paragraph 5 below for the benefit of themember on the understanding that all performance -related conditions specified for such disbursement havebeen met and subsequently determines that any suchcondition was not met, the Trustee shall retransfer tothe Trust any amount remaining in such account fromsuch disbursement up to the total amount of such dis-bursement as well as all net investment income accruedon the amounts disbursed on the basis of incorrectinformation provided, however, that no retransfer shallbe made if (i) the member's completion point has beenreached, or (ii) the Trustee decides that such disburse-ment remains appropriate in view of the member'srecord of policy implementation and its poverty reduc-tion efforts. The retransfer of these amounts will notaffect the amount of commitment in N P V terms to themember as established at the decision point. The Fundshall issue press releases on its decisions regarding thecircumstances of the misreporting and the applicableremedies."

Decision No. 12696-(02/27) PRGFMarch 15, 2002

(h) Trust for Special ESAF Operations for HeavilyIndebted Poor Countries and interim ESAF SubsidyOperations--Terms and Conditions forAdministration of Account--AmendmentThe Trust for Special ESAF Operations for Heavily IndebtedPoor Countries and Interim ESAF Subsidy Operations—Terms and Conditions for Administration of AccountProvided Under Section III, Paragraph 5(b) of Trust(Decision No. 11698-(98/38) ESAF) 1 6 shall be amended asfollows:

1. Paragraph 1 shall be redrafted to read as follows (withchanges underscored):

"1 . The resources of the Account shall consist of (i)the proceeds of grants and/or loans paid into theAccount for the benefit of a member by the ESAF-H I P C Trust, and (ii) contributions by other donors tothe reduction of a member's debt service payments onits existing debt to the Fund, and (iii) net earningsfrom the investment of resources held in the Account."

2. In paragraph 3, the following new sentence shall beadded at the end of the paragraph:

"The Trustee shall also be authorized to retransferback to the Trust an amount equivalent to (i) resourcesdisbursed from the Trust into a sub-account in excessof the amount needed to meet the Fund's share ofdebt reduction in accordance with Section III, para-graph 3(b) of the Instrument to Establish the

P R G F - H I P C Trust, or (ii) resources disbursed asinterim assistance from the Trust into a sub-account onthe incorrect understanding that all performance-related conditions specified for such disbursement weremet, in accordance with Section III, paragraph 3(d) ofthe Instrument to Establish the PRGF-HIPC Trust."

Decision No. 12697-(02/27) PRGFMarch 15, 2002

(i) PRGF Trust and PRGF-HIPC Trust—ReserveAccount—ReviewPursuant to Decision No. 10286-(93/23) ESAF, 1 7 the Fundhas reviewed the adequacy of the Reserve Account of thePRGF Trust, and determines that amounts held in theaccount are sufficient to meet all obligations which could giverise to a payment from the Reserve Account to lenders to theLoan Account of the PRGF Trust in the six months fromApril 1, 2002 to September 30, 2002.Decision No. 12720-(02/40) PRGFApril 9, 2002

E. Overdue Financial Obligations(a) Review of Progress Under StrengthenedCooperative Strategy—Extension of Rights ApproachThe availability of the rights approach is extended until end-August 2001.Decision No. 12512-(01/67)June 28, 2001

(b) Strengthened Cooperative Strategy—ReviewThe Fund has reviewed progress under the strengthenedcooperative strategy with respect to overdue obligations tothe Fund as described in EBS/01 /122 (7/23/01). TheFund reaffirms its support for the strengthened cooperativestrategy and agrees to extend the availability of the rightsapproach until end-August 2002.Decision No. 12544- (01/84)August 22, 2001

(c) Procedures Applicable to PRGF TrustThe Instrument to Establish the Poverty Reduction andGrowth Facility annexed to Decision No. 8759-(87/176)ESAF 1 8 shall be amended by adding the following Appendix:

"APPENDIX II: Procedures for Addressing OverdueFinancial Obligations to the Poverty Reduction and

Growth Facility TrustThe following procedures aim at preventing the emergence oraccumulation of overdue financial obligations to the PovertyReduction and Growth Facility Trust (the "Trust") and ateliminating existing overdue obligations. These procedureswill be implemented whenever a member has failed to make arepayment of principal or payment of interest to the Trust("financial obligation").

1. Whenever a member fails to settle a financial obligationon time, the staff will immediately send a cable urging themember to make the payment promptly; this communicationwill be followed up through the office of the Executive Direc-

I6Ibid., pages 96-99.17Ibid., pages 390-91.18Ibid., page 43.

124 A N N U A L R E P O R T 2 0 0 2

A P P E N D I X I I I



similar press release shall be issued upon reinstatement of themember on the list. The information contained in such pressreleases, where pertinent, shall be included in the AnnualReport for the year concerned.

Declaration of noncooperation with the PRGF Trust8. A declaration of noncooperation with the PRGF Trust

may be issued by the Executive Board whenever a member'slongest overdue financial obligation has been outstanding fortwelve months. The decision as to whether to issue such adeclaration would be based on an assessment of the member'sperformance in the settlement of its arrears to the Trust andof its efforts, in consultation with the Fund, to follow appro-priate policies for the settlement of its arrears. Three relatedtests would be germane to this decision regarding (i) themember's performance in meeting its financial obligations tothe Trust taking account of exogenous factors that may haveaffected the member's performance; (ii) whether the memberhad made payments to creditors other than the Fund whilecontinuing to be in arrears to the Trust; and (iii) the pre-paredness of the member to adopt comprehensive adjustmentpolicies. The Executive Board may at any time terminate thedeclaration of noncooperation in view of the member'sprogress in the implementation of adjustment policies and itscooperation with the Fund in the discharge of its financialobligations.

Upon a declaration of noncooperation, the Fund couldalso decide to suspend the provision of technical assistance.The Managing Director may also limit technical assistanceprovided to a member, if in his judgment that assistance wasnot contributing adequately to the resolution of the problemsassociated with overdues to the Trust.

The Fund shall issue a press release upon the declarationof noncooperation and upon the termination of the declara-tion. The information contained in such press releases shall beincluded in the Annual Report(s) for the year(s) concerned."Decision No. 12545-(01/84) PRGFAugust 22, 2001

(d) Amendment to Procedures for Dealing withMembers with Arrears to General and SDRDepartments

In the Procedures for Dealing with Members with Over-due Financial Obligations to the Fund adopted by theExecutive Board on August 17, 1989,

(i) the title of the decision shall be amended to read:"Procedures for Dealing with Members with Over-due Financial Obligations to the GeneralDepartment and the SDR Department";

(ii) the following paragraphs shall be added between theparagraph beginning with the terms " A complaint bythe Managing Director . . . " and the paragraphbeginning with the terms "The Annual Report andthe financial statements . . .":

"When a member has overdue financial obligationsoutstanding for more than three months, a brieffactual statement noting the existence and amountof such arrears will be posted on the member'scountry-specific page on the Fund's external web-site. The statement will be updated as necessary. Itwill also indicate that the member's access to theFund, including PRGF and H I P C resources, has

A N N U A L R E P O R T 2 0 0 2 125

tor concerned. At this stage, the member's access to the Fund,including PRGF and H I P C resources, will have been sus-pended.

2. When a financial obligation has been outstanding fortwo weeks, management will send a communication to theGovernor for that member stressing the seriousness of thefailure to meet obligations to the Trust and urging full andprompt settlement.

3. The Managing Director will notify the ExecutiveBoard normally one month after a financial obligation hasbecome overdue, and will inform the Executive Board of thenature and level of the arrears and the steps being taken tosecure payment.

4. When a member's longest overdue financial obligationhas been outstanding for six weeks, the Managing Directorwill inform the member concerned that, unless all overdueobligations are settled, a report concerning the arrears to theTrust will be issued to the Executive Board within two weeks.The Managing Director will in each case recommend to theExecutive Board whether a written communication should besent to a selected set of Fund Governors, or to all Fund Gov-ernors. If it were considered that it should be sent to aselected set of Fund Governors, an informal meeting of Exec-utive Directors will be held to consider the thrust of thecommunication. Alternatively, if it were considered that thecommunication should be sent to all Fund Governors, a for-mal Board meeting will be held to consider a draft text andthe preferred timing.

5. A report by the Managing Director to the ExecutiveBoard will be issued two months after a financial obligationhas become overdue, and will be given substantive consider-ation by the Executive Board one month later. The reportwill request that the Executive Board limit the member's useof PRGF Trust resources. A brief factual statement notingthe existence and amount of arrears outstanding for morethan three months will be posted on the member's country-specific page on the Fund's external website. This statementwill also indicate that the member's access to the Fund,including PRGF and H I P C resources, has been and willremain suspended for as long as such arrears remain out-standing. A press release will be issued following theExecutive Board decision to limit the member's use of thePRGF Trust resources. A similar press release will be issuedfollowing a decision to lift such limitation. Periods betweensubsequent reviews of reports on the member's arrears bythe Executive Board will normally not exceed six months.The Managing Director may recommend advancing theExecutive Board's consideration of the reports regardingoverdue obligations.

6. The Annual Report and the financial statements willidentify those members with overdue obligations to the Trustoutstanding for more than six months.

Removal from the list of PRGF-eligible countries7. When a member's longest ovedue financial obligation

has been outstanding for six months, the Executive Boardwill review the situation of the member and may remove themember from the list of PRGF-eligible countries. Any rein-statement of the member on the list of PRGF-eligiblecountries will require a new decision of the Executive Board.

The Fund shall issue a press release upon the decision toremove a member from the list of PRGF-eligible countries. A


A P P E N D I X III

been and will remain suspended for as long asarrears remain outstanding.

A press release will be issued following theExecutive Board's decision to limit the member'suse of the general resources or, if the member hasoverdue obligations in the S D R Department, tosuspend its right to use SDRs. A similar pressrelease will be issued following a decision to liftsuch limitation or suspension."; and

(iii) the following paragraph shall be added between theparagraph beginning with the terms " A declaration ofcensure or noncooperation would come as an inter-mediate step . . . " and the paragraph beginning withthe terms " A draft of the declaration is set out . . .":

"Upon a declaration of noncooperation, technicalassistance to the member will be suspended unlessthe Executive Board decides otherwise."

Decision No. 12546-(01/84)August 22, 2001

(e) Policy to Publish Information on MissedRepurchase ExpectationsWhen a member has failed for three months to meet a repur-chase expectation under paragraph l(b) of Decision No.5703-(78/39),19 paragraph 10(a) of Decision No. 4377-(74/114),20 or paragraphs 6(b) or 19 of Decision No.11627-(97/123) S R F / C C L , 2 1 a brief factual statement not-ing such failure and the resulting suspension of use of Fundresources will be posted on the member's country-specificpage on the Fund's external website. This statement will beremoved when the Executive Board lifts the suspension, or ifthe member meets the missed repurchase expectation or set-tles the associated repurchase obligation.Decision No. 12547-(01/84) SRF/CCLAugust 22, 2001

1. References in Fund decisions to Decision No. 7842-(84/165 )22 on the guidelines on corrective action in cases ofmisreporting and noncomplying purchases in the GeneralResources Account shall be understood to be references toDecision No. 12249-(00/77),23 July 27, 2000.

2. Decision No. 7931-(85/41),24 March 13, 1985, andDecision No. 7999-(85/90),25 June 5, 1985 are herebyabrogated.Decision No. 12548- (01/84)August 22, 2001

Section I. Principles of Burden Sharing1. The financial consequences for the Fund that stem

from the existence of overdue financial obligations shall beshared between debtor and creditor member countries.

19Ibid., pages 301-03.20Ibid., pages 193-97.21Ibid., pages 264-70 and 605.22Ibid., pages 190-91.23Ibid., pages 188-90.24Ibid., page 53425Ibid., page 535.

2. The sharing shall be applied in a simultaneous andsymmetrical fashion.

Section II. Determination of the Kate of ChargeThe rate of charge referred to in Rule 1-6(4) shall be adjustedin accordance with the provisions of Section IV of thisdecision and Section IV of Executive Board DecisionNo. 12189-(00/45),26 adopted April 28, 2000.

Section III, Adjustment for Deferred ChargesNotwithstanding paragraph 1(a) of Section IV of ExecutiveBoard Decision No. 12189-(00/45),27 adopted April 28,2000, the rate of charge and the rate of remuneration deter-mined under that Section shall be rounded to two decimalplaces.

Section IV. Amount for Special Contingent Account-11. An amount of SDR 94 million shall be generated dur-

ing financial year 2003 in accordance with the provisions ofthis Section and shall be placed to the Special ContingentAccount-1 referred to in Decision No. 9471-(90/98),28

adopted June 20, 1990.2. (a) In order to generate the amount to be placed to

the Special Contingent Account-1 in accordancewith paragraph 1 of this Section, notwithstandingRule I-6(4)(a) and (b) and Rule I-10, the rate ofcharge referred to in Rule I-6(4) and, subject tothe limitation in (b), the rate of remunerationprescribed in Rule I-10 shall be adjusted in accor-dance with the provisions of this paragraph.

(b) Notwithstanding paragraph 1 above, adjustmentsto the rate of charge and the rate of remunerationunder this paragraph shall be rounded to two deci-mal places. No adjustment in the rate ofremuneration under this paragraph shall be carriedto the point where the average remuneration coef-ficient would be reduced below 85 percent for anadjustment period.

(c) The adjustments under this paragraph shall bemade as of May 1, 2002, August 1, 2002, Novem-ber 1, 2002 and February 1, 2003; shortly afterJuly 31 for the period May 1 to July 31; shortlyafter October 31 for the period from August 1 toOctober 31; shortly after January 31 for the periodfrom November 1 to January 31; shortly after April30 for the period from February 1 to April 30.

3. (a) Subject to paragraph 3 of Decision No. 8780-(88/12),29 adopted January 29, 1988, the balancesheld in the Special Contingent Account-1 shall bedistributed in accordance with the provisions of thisparagraph to members that have paid additionalcharges or have received reduced remuneration as aresult of the adjustment when there are no out-standing overdue charges and repurchases, or atsuch earlier time as the Fund may decide.

(b) Distributions under (a) shall be made in propor-tion to the amounts that have been paid or have

26Ibid., pages 358-61.27Ibid.28Ibid., pages 366-68.29Ibid., pages 319-20.

126 A N N U A L R E P O R T 2 0 0 2

(g) Burden Sharing--Implementing in FY2003

(f) Amended Decisions



(c)

(d)

Section V. ReviewThe operation of this decision shall be re n theadjustment in the rate of remuneration reduces the remu-neration coefficient to the limit set forth in paragraph 2(b)of Section III of this decision and Section IV of ExecutiveBoard Decision No. 12189-(00/45),32 adopted April 28,2000.Decision No. 1271April 26, 2002

(h) Review of System of Special ChargesThe Fund has reviewed the system of special charges appble to overdue obligations to the General Reserve Account,

Trust Fund.

April: 26, 2002

(a) Period fcr Concent to Increases--Extension

Decision No, 12533-:(01/76)Tuh 1JL 2001

i^•^•l^^^••?&ts^^^^^^^^^•••• mmmimi

January

30Ibid., page 312.kl;sjg;jgskgjsd'g

jkbaskjhkjghkdkg* ..• 5S7-68,asdfsdfsdf

24Ibid.

G. Technical Assistance-Framework AdministeredAccount-Amendment to InstrumentThe instrument establishing the Framework AdministeredAccount for Technical Assistance Activities (Decision No.10942-(95/33)35), as amended, is hereby further amended asprovided in the Annex to EBS/01/202 (11/29/01).DecisionDecember

H. Biennial Review of Implementation of FundSurveillance and of 1977 Surveillance Decision----Overview; and Extension of Deadline for ReviewIn Decision No. 12178-(00/41),36 adopted on April 10,2000, "April 10, 2002" in the first and second paragraphsshall be replaced with "July 10, 2002."Decision No. 12713-(02/38)April 5, 2002

I. General Data Dissemination System---AmendmentThe Executive Board approves the draft amendments to theGeneral Data Dissemination System as set forth inSM/01/208. SUD. 4 Q1/5 /01) .Decision No. 12614-(01/117)November 12, 2001

J. Reducing Work Pressures

(a) Article IV Consultation Documentation—RecentEconomic DevelopmentsArticle IV consultation documentation shall no longer

include Recent Economic Development reports. Instead thestaff could incorporate, as needed, the appropriate informa-tion on recent economic developments in a Selected Issuespaper as analytical background for key policy issues.DecisionJanuary 22, 2002

(b) Reports on Observance of Standards and CodesIndividual hard copies of Reports on the Observance of Stan-dards and Codes that are to be published shall no longer becirculated to Executive Directors.Decision

January

(c) Summinas Up for Internal Purposes on Use ofFundFollowing any Execuitive Board meeting on the use of Fundresources by a member combined with an Article IV consulta-tion, summing s up for internal purposes on the use of Fund

resources shall no longer be prepared. Instead, a paragraph orparagraphs concerning Executive Directors' views regardingthe member's Fund-supported program shall be attached tothe summing up of the Board discussion of the Article IVconsultation. Such paragraph(s) shall not be published withany Public Information Notice following the meeting.

Decision No. 12663-(02/6)January

35IbicL36Ibid., page 17.

A N N U A L R E P O R T 2 0 0 2 127

not been received by eachthe respective adjustments.If a member that is entitled to a payment underthis paragraph has any overdue obligation to theFund in the General Department at the time ofpayment, the member's claim under this paragraphshall be set off against the Fund's claim in accor-danceApril 30, 1986, or anyFund.S^bied; to mregrapk(88/12),31 adoptedcharged against theit shall be recorded in accordance with the princi-ples of proportionality set forth in (b).

member as a rest

1 (86/74),30 adoptedwith Decision No. §27subsequent decision of the

4 or Decision JNo. o/oU-January 29, 1988, if any loss is

Contingent Account-1,Special

No. 12641-(01/6, 2001

No, 12661-(02/6)

No. 12662-(02/6)22, 2002

Resources

22, 2002

page 106.

and theThe Structorral Adjustment Facility,-, ' 'dfafaff

Decision No. 12723-(02/43)

th General Review of Qoutas

Pursuant to paragraph 4 of the Resolution of the Board of" .-'---•Governors No 53-2133 "Increase in Quoatas of Fund

3tices of consent fror:,jklajdgkljgklsdjgsdlkgsdlgsd'gsdgsdgdsg

Washington time, on January 31, 2002

fjdhfsfhfhhfshfsjhfshfuiwerhjhfshfshfkshfsjhfshfhfhfdfshjfsdhfshfjshfsjhfshfkshfklsahriwherfshfhf

fhashfshfshfshfklshflshfskhfkshfshfklshfshfshfhjsfhklshfkslfhsjdasdj om members to mereslslfsdkfkfskflsfksfks;f

dsfsjkfksfjsfsjfreceived in the bund by 6:00 pdl;kasfksfkllsffakjjfkfjsffjkskfj>n July 31, 2002.

I - - C'-/,-No. 12672-(02/ll)31 2002

ust be received in theml;sjglsajglsdjgdsl'ggsdgsdg'sdg'sgjsd'gdg

nkbgaksljgklsdjgsdjklgsdjkldsljksdlmnslhgsklghsdggd


A P P E N D I X III

Bulgaria, Cyprus, Czech Republic, Estonia, Hungary,Latvia, Lithuania, Malta, Poland, Romania, SlovakRepublic, Slovenia, and Turkey.

The Executive Board will be informed by management,after consultation with the Presidency of the Council of theEuropean Union, of any changes to that list.Decision No. 12479-(01/43)April 27, 2001

(b) Observer StatusThe Executive Board has reviewed Decision No. 11875-(99/1 ),38 adopted December 21, 1998. The Decision shallbe reviewed again before January 1, 2003.Decision No. 12652-(02/1)December 28, 2001

128 A N N U A L R E P O R T 2 0 0 2

(a) Observer Status--European UnionAccession CountriesIt is understood for the purposes of paragraph 2 of the Deci-sion on the Observer Status of the European Central Bank(ECB) (Decision No. 11875-(99/1),37 adopted December21, 1998), that the ECB shall be invited to send a representa-tive to meetings of the Executive Board on Fund surveillanceover the policies of, and to meetings of the Executive Boardon use of Fund resources by, members that are accessioncountries to the European Union, provided that there is noobjection from the member concerned.

Currently, the following members are accession countriesto the European Union:

37lbid., pages 510-11.

K. European Central Bank

38Ibid.


DFASFHSFHKFHKHFSFHHFHFHFKHFHFHFHHFJFJSFSKFJSFJSKFJSLJFASKFLSFL

APPENDIX IV

.JSFLFKFLFJJFFJF . many challenges as economic activityweakenedthroughout the world, increasing the risks faced byvulnerable countries. Restoring the momentum of global eco-

nFJFJSFJmicgrowth has required an unprecedented level ofcooperation between international financial institutions.Collaboration among the IMF, World Bank, the UnitedNations (UN) and its specialized agencies, the World TrcOrganization (WTO), the Organization for Economic

Cooperationand Development (OECD), the Bank for Inter-national Settlements (BIS), regional development banks, andintergovernmental groups took on added significance in anuncertain global economic environment.

Regional Represent and Technical AssistanceThe IMF's Office in Europe, the Office in Geneva, and theRegionalOffice for Asia and the Pacific maintain close ties

with other international organizations. The Office in Europe(Paris Office) liaises with regional and international institutions

located inEurope and contributes to the IMF's Europeanfocusing on multilateral and regional surveillance.operations

The Paris Office also provides secretariat support to the Groupliaises with bilateral donors, regularly participates ii

the IMF at donor and surveillance committeesof Ten,

OZ 3D in Paris, and keeps close contact with the BIS inof theand reperesnts

ith bilateral donors, regularly participates iidfsfasdsdsdsdsdsstaff attend, on an ad hoc basis, meetings of orga-Paris OSke

sdddddddddddddddddddddddddddddddddddddsdsdan Parliament, and the Ccith bilateral donors, regularly p

ith bilateral donors, regularly participates iisaddsfasfasfadfafdafafafafafivities of Geneva-based multilateral agencies in areas rel-

dfhfhsfhjruihjhfshfshfkshfuoruhkhfhsfhfhfkjrhiruhfhffhfhhfsdhfksahfsjhfsjhfjhsfhslhfkshfkshfjshfhsjfhsjkhfsjhfsjfjfhh

such as the Integrated Framework for Trade-Related Techni-nomic Oooperation (APEO) iorum^ the Association of South

fdaaadaf;ains contacts with the International Labor Organizationfafafdfafafa), the UN Conference on Trade and Developmentnomic Oooperation (APEO) iorum^ the Association of South

U N Econcnomic Oooperation (APEO) iorum^ the AssociationParliamentnomic Oooperation (APEO) iorum^ the Association

adfafdfafsfasfasfafffsddfasdfsadfhsfhsfhkfhlie IMF's Office for Asia and the Pasdfdflaskfskfflflkffff

Tokyo is responsible for enhancing survesffsfsffffasfsaffffaf riot-nomic Oooperation (APEO) iorum^ the Association of Southnomic Oooperation (APEO) iorum^ the Association of South

nomic Oooperation (APEO) iorum^ the Association of South



nomic Oooperation (APEO) iorum^ the Association of South•. and. the cixcc^nivda' iVleeting oy • . -' i i- _ ' i i 'I

Banks (EMEAP). It provides the secretariat for the ManilaFramework Group. The cdffafdfsflsfksf s close contact with

pment Bank; > ..'_' :^^ Com-

mission z':afdfdsafasfafafafaafafaf.afadafaaf -as well as with theWorld Bank's office in Japan.

FY2002 saw the establishment of a regional technical assis-tance center in Bridgetown, Barbados. The CaribbeanRegional Technical Assistance Center (CARTAC), a joint ini-Regional Technical Assistance Center (CARTAC), a joint ini-institutions to help ,j Caribbean cou t : : uiprove their eco-nomic and fiscal mana genre I prac ices, was inaugurated onNovember 5, 2001. The IMF's Executive Board approved the :Regional Technical Assistance Center (CARTAC), a joint ini-Centers (AFEJTACs). The Dar ec Salaam and Abidjan centerswill helafAFEJTACs). The Dar ec Salaam r East Africa andWest Africa.AFEJTACs). The Dar ec Salaam '.: policy-relatedtraining to public sector officials and private sector managersthrough :: : .port of the Joint Africa Institute, the JointVienna Institute, and i the Joint ;,ipore Regional Training Insti-tute. In addition, th: - the Joint al training programs have beenadded in the past three years—the IMF-Arab Monetary FundRegional Training Program in the United Arab Emirates, theJoint Chin^ I the Joint the Joint the Joint the Joint the JointRegional the Joint the Joint the Joint the Joint raerica in Brazil Ethese regional facilities and programs offers courses and semi-nars or the Joint the Joint i e to regional capacity building. (Formore the Joint the Jointad 7.)

Liaison with Intergovernmental GroupsOne notable aspect of the altered internatk the Joint the Jointhas been the increased emphasis given to c the Joint the Joint ithIntergovernmental groups involved w rfi c svisL \ \ the Joint the Jcombat money laundering and the financing of the Jointczxvzvc :the Jointdfadafaddffdf

The IMF, along with the World Bank, is the Joint the Jointthe FATF to develop a methodology for assessing anti-money-laundering and combatting the financing of terrorism( A M L / C F T ) measures contained in the FATF 40 Recom-mendations on Money Laundering and their Eight SpecialRecommendations on Terrorist Financing. IMF staff attendedthe FATF Extraor the Joint/ Plenary Meeting, on October 29-30,2001, in Washington and the global Forum on Counteringthe P the JointTerrorism, on February I, 2 the Joint the Joint thethe Joint the Joint the Joint the Joint the Joint the Joint the Joi

the Joint the Joint the Joint the Joint the Joint the Joint the Jointbat the financing of te the Joint the Joint the Joint the Jointd onMarch 25-26, 2002, in Hong Kong S A R As a the Joint ofthe FSF5 the IMI the Joint the Joint the Joint on organizing aadavacasdfasf

A N N U A L R E P O R T 2 0 0 2 129


ith bilateral donors, regularly participates iifafafafith bilateral donors, regularly participates iisfadf


menting a process for a:adfafafafafafaf re financial centers'5. Tin i chairman of the

institutions, and the WTO following the Spring Meetings ofinstitutions, and the WTO following the Spring Meetings of

ed between thees the Financial

ember countries. The Basel Com-vcicc on Zdfafffaf ̂afasfafafaf'1 si on 9 the International Association

. ational OrganizationJ DO), and the Egmont

sent of sector-specificcontributions c cv-afaaf:afvhafaf •/ haf ^ceasing anti-money-

counterterrorist financing measures. Besidesafafafafafafafafafafsdfafsaf: in the A M L / C F T area, the I M F contin-

ues tfafafacafafafasd ^ith these bodies on other aspects of theinterafdfsfafaaf Hiaf ancial system, such as standards and codes.

ively in theother major intergovernmental

3up of Seven, Group of Ten, Groupf Twenty-Four. Managing Director

s third meeting of the G-20, held inOttawa, osasddafadfafadffafff 01. On February 9, 2002, he

s and central bank governors of the,ake, Canada, to review recent eco-

nomic dev-

dffasfasfsjfajkfkfkjskfiates with the United Nations on a regularbasis through the I M F Special Representative to the U N and

fisfjsfjksfjfjfinstitutional contacts, including management and theExecutive Board.

During FY2002, the main issue on which the IMF andU N cooperated was the preparation for the U N InternationalConference on Financing for Development (FfD). On March18-22, 2002, 51 heads of state or government, along withministers of finarffdffdffdf :, development, and foreign affairs,gathered in Monterrey, Mexico, for the confijdfjfjfkjkfjThroughout FY2002, I M F staff contributefsafthe FfD Preparatory Committee, providing input for theevent and its concluding document. Discussions between the

fsfjskfjfjersons of the Preparatory Committee for the confer-

the work of

ana tne l ivir nxeprior to the Mor

momentum for reforrrThe IMF's Manaei

Level Segment of the.Social Council (ECOSAfrica and the Role ofGeneva on luly 16, 2Cdfafasfflfklfflsf;f'sfNew African Initiative

ffffl;sf;of state meetingjoint. The Initial

for Africa';dsfjkflfkl;sfkflsfsaioflsjfkasjfsjfklasjfrticular corkofjasfjlfljflsflsjfjacussed at th

dfsfjslfjsafjksjflsjflfklonnd ilfsjfksjfkjsfjsfjkskfksjfksfit assisfasfsfsafslfsjfwhfkasfnksfjnks:, and t

fasfksfsdfklsfl;sl;fkfklslfafaf

cutive xsoara ana management tooKiterrey conference. Speaking at the con

institutions have in reinforcing theffkjskfjsjfsjjlsjfsjfsjfjsfjsfj;sjfng Director participated in the High-^nnual Session of the Economic and•OC) on "Sustainable Development ofthe United Nations System" held in•01. He pledged the IMF's support forr African econor.:afdffsfsfsffasfsf>ment. Theinstitutions, and theerjtetjretklejtjtjkin Lusaka, prov faflflsdffinstitutions, dsf

:ive was subsequently renamed the Ne\*s Development, or N E P A D . Besidesinstitutions, and theinstitutions, and theie session included the prospects ofof multilateral trade negotiations, over-tance, the possibility of enlarging thehe overall coherence of international

Deputy Managing Director Eduardo Aninat attended theHigh-Level Dialogue between E C O S O C , the Bretton Woodsinstitutions, and the W T O following the Spring Meetings ofthe I M F C / D C . IMF management also participated in thesessions of the Chief Executives Board (CEB), which bringstogether the U N organizations, the IMF, the World Bank,and the W T O under the chairmanship of thefkfkkkkkkkk :ary-General.

The U N ' s announcement of the Milleiikkfklkfkflkflkfllkflklfkfkfkslkfkffkf.Is (MDGs) on September 19, 2001, was welcomed

by Managing Director Kohler. The M D G targets and indica-tors were the outcome of extensive consultations between theU N Secretariat and staff members of the IMF, World Bank,and O E C D . They represent the harmonization of Interna-

. Development Goals and the U N Millenniumxlaration.

Collaboration with the Wfkfkfkkf eikThe collegial relationship between the I M F and the WorldBank dates back to their founding at the Bretton WoodsConference of 1944. As mandated in their respective Articlesof Agreements and in the joint 1989 Concordat, each institu-tion plays an important, complementary role in ensuring theworld's economic growth and stability. Both institutions con-duct regular consultations of senior staffs, participate togetheron missions, attend joint meetings, and share documents.Collaboration at the staff level, both in policy advice and onoperational matters, is supported by the ongoing dialoguebetween IMF and Bank management,

As the missions of the institutions have evolved over time,management has periodically redefined the division of laborbetween the two organizations, with a view tcfffsfsfsfsfff ncingtheir overall effectiveness. FY2002 saw a renevfsfffsfasfaf ntumto strengthen the framework for colfsafasfsfafafafafafaf ; uponthe joint management statements of 1998 and 2000, theinstitirfafaffsfsff ther reviewed IMF-Bank cooperation in sup-porting country development.fafdsfafafafafafa 3 were refinedand clarified, asfafafafafaf nizations sought to ensure a moresystematic working relationship.

Particular emphasis was given to streamlining and focusingconditionality. Although policy measures critical for a pro-gram to achieve its macroeconomic goal should continue tobe included, program design and the conditions attached toprogram financing must be founded on strong national own-ership, The revised framework, detailed in a joint documentdated August 23, 2001, seeks to reduce institutional overlapand reinforce sustained implementation of country economicreforms.

An important element in this process has been the applica-tion of the "lead agency" concept for program design andmonitoring. In order to better delineate roles, improveaccoiafsdfasfafafafafafaffa se transparency, one institution isidentified as the agency to lead staff work on specific policyissues. Within the overall collaboration frsafafafafafdsfasfafdfsftution retains ultimate responsibility for its own lendingdecisions, reflecting separate accountability.

Among the major joint initiatives completed in FY2002were a review of the Poverty Reduction Strategy Paper

:h and a set of joint papers discussing the sta^tus of implementation of the H I P C Initiative. Other jointinitiatives to support poverty reduction and growth includeda statement from the Managing Director of the IMF and the

180

APPff f fa fa f f . . IV

relations* with the Urnited nIonstiond

tionalD.

sddfasfaffafff

cafasfafdflsjfsfjflsfljsfjslfjsff

institutions, and the WTO following the Springinstitutions, and the WTO following the Spring

WTO following the Spring

institutions, and theinstitutions, and theinstitutions, and theinstitutions, and the

institutions, and theinstitutions, and the

institutions, and theinstitutions, and theinstitutions, and theinstitutions, and theinstitutions, and theaffafinstitutions, and theffaaff

institutions, and thesdfinstitutions, and thedfaf

institutions, and therrqrdfsafinstitutions, and thef

A N N U A L R E P O R T 2 0 0 2


M F R U T I O N A L O R G A N I Z A T I O N S

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inmore detail; d ,fa -.afa-f faf.•

like the IMF. At the High-Level Mecdng of the ECOSOC...d z :.. -. . d.

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in


decor/ ::essr̂ ei adad ad adad - adda a //ord

Cooperation wirt regional development banksilike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inmulatioini and implementation of policies in the economic andlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inolike the IMF. At the High-Level Mecdng of the ECOSOC in -like the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

. ' . . ' • . . . • • ' . : . : ' , . : • : . : . • : • : :

of H l P C riQiatcers.like the IMF. At the High-Level Mecdng of the ECOSOC in


like the IMF. At the High-Level Mecdng of the ECOSOClike the IMF. At the High-Level Mecdng of the ECOSOC in bank

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in-like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

multilateral sdadafafasfafafafaf.like the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in -like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inGeneva on July 16, 2001, he pledged the IMF's support for alike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inMr. Kohler attended the Informal Meeting of the ECOFINlike the IMF. At the High-Level Mecdng of the ECOSOC induction of euro notes ano ';•dfa affasfs an emblem of thesuccesses and challenges of European integration. At thelike the IMF. At the High-Level Mecdng of the ECOSOC inWashington on January 14, 2002, the Manag; ;; "d^-ctorlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the EClike the IMF. At the High-Level Mecdng of the

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in-like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC intance to Africa.

like the IMF. At the High-Level Mecdng of the ECOSOClike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inrlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in

like the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC inlike the IMF. At the High-Level Mecdng of the ECOSOC in2001.

A N N U A L R E P O R T 2 0 0 2

I M F R t I A T I O U S- ' W S T H Q- T M I I ! N T E K N

dsadsdadaadi |J - » r ;

role of uimf management

like the IMF. At the High-Level Mecdng ofad

131©International Monetary Fund. Not for Redistribution

APPENDIX

External Relations

In FY2002, the IMF accelerated its efforts to increase itstransparency and communicate effectively with people aroundthe world. With regard to public statements and publica-tions, the main activities were:• Publishing a much wider range of country- and policy-

related documents on the IMF's website (www.imf.org)under the IMF's new policy on transparency, adopted in2000. Information and documents on the Financial SectorAssessment Program (FSAP) were added in FY2002. Thewebsite continued to be very popular, attracting users insteadily growing numbers, and a program of regularenhancements to the website's content, usability, andsearch facility begun during the financial year is expected toincrease further the importance of the website in the IMF'sexternal communications.

• Speeches and other public appearances by management andsenior staff conveyed the IMF's views on broad policy andeconomic issues ranging from IMF reform to the outlookfor the world economy following September 11, and onspecific country and regional issues, ranging from thelaunch of the euro to the prospects for growth and reformin Russia. The IMF published most speeches on the web-site within hours of delivery.

• Publication of economic and financial research and policyanalysis papers increased, including three issues of theWorld Economic Outlook; the inaugural issue of the newquarterly Global Financial Stability Report; a new AnnualResearch Conference issue of IMF Staff Papers; and a widearray of books, manuals and guides, Occasional Papers,Working Papers, Policy Discussion Papers, pamphlets, andleaflets (see Table V.1).

• Finance & Development (a quarterly magazine on issues inthe international economy) and the IMF Survey (a biweeklyjournal on the activities of the IMF) were revamped tosharpen their focus on key policy concerns.

• To make the IMF's technical and analytical work moreaccessible, the IMF published new titles in its EconomicIssues, Issues Briefs, and Factsheets series. Economic Issues-arebrief, simplified summaries of policy-related economicresearch findings. Issues Briefs discuss key issues facing theIMF and the global economy, while Factsheets explain inplain language how the IMF works.

• Distribution of IMF publications was expedited andexpanded in FY2002. A streamlined inventory and order-fulfillment system, using state-of-the-art technology, willensure timely distribution of publications worldwide. Inaddition, over 150 libraries in 183 countries were invitedto join in the IMF's Depository Library Program—initiated

to guarantee dissemination of IMF publications in membercountries where people would otherwise have inadequateaccess to such information.

• A study by outside consultants of user requirements anddissemination and pricing strategies for IMF publicationswas conducted in FY2002. Two key findings were that(1) the IMF could significantly augment the disseminationof its publications, both priced and complimentary, byusing e-commerce to contact consumers and completeorders, and—for such Internet publications as Interna-tional Financial Statistics—to provide online access, and(2) despite the steady spread of electronic media world-wide, print editions of many publications will be needed foran indefinite period, particularly for users in developingcountries with limited technology infrastructure.The I M F also enhanced its media relations work in

FY2002:• Regular press briefings by the Director of the External Rela-

tions Department were held roughly every two weeks, withsubsequent posting of transcripts and video on the website.Press conferences with management and senior staff, held onsuch occasions as the Spring and Annual Meetings, and onrelease of major reports such as the World Economic Out-look and the Global Financial Stability Report, were alsomade widely available to the public as transcripts andvideos posted on the website. In addition, mission chiefsand resident representatives increased their contact withlocal press and media on country-related issues. Toimprove accessibility, new web pages—for IMF residentrepresentatives in Angola, Bulgaria, China, Estonia, Latvia,Pakistan, and Vietnam—were established.

• Press Releases on decisions taken by the Executive Board,and News Briefs expressing the views of management andsenior staff on topical matters, were posted on the websiteand also distributed directly by fax to journalists andothers.

• Public information notices (PINs) on both country and pol-icy issues were posted on the website. Country PINs conveysummaries of the Executive Board's review of economic sur-veillance or Article IV consultations with IMF membercountries. Publication is authorized by the countries them-selves. Policy PINs summarize discussions of IMF policies.Decisions to publish policy PINs are based on whether dis-cussions have either reached completion or are at a pointwhere informing the public is deemed useful.

• Through op-eds and letters to the editor, the IMF sought tostate its case directly to the public and correct rnispercep-tions about its role. Op-eds addressed such broad policy

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E X T E R N A L R E L A T I O N S

issues as "Globalization and the Poor Countries," "ShouldCountries Like Argentina Be Able to Declare ThemselvesBankrupt?" and "Toward Faster Poverty Reduction."Senior staff and resident representatives responded to spe-cific criticism leveled against the IMF in letters to the editor,which appeared in newspapers and other publicationsaround the world.To enhance awareness and understanding of its policies

and operations, the IMF expanded its public outreach activi-ties in FY2002. Participants included legislators andparliamentarians in a number of countries, the private sector(especially financial market participants), and civil society atlarge, including nongovernmental organizations, laborunions, religious groups, academia, and the general public. Inthe period leading up to the Annual Meetings—slated to takeplace on September 29-30, 2001—the IMF made a specialeffort to reach out to civil society and other critics to addresstheir concerns. The terrorist attacks in the United States onSeptember 11, 2001, however, led to a postponement of theAnnual Meetings and dramatically changed the parameters ofthe debate on globalization and the role of the IMF. In theend, street protests against the I M F and the World Bank wererelatively muted during the scaled-down meetings of theInternational Monetary and Financial Committee and theDevelopment Committee held in Ottawa in November 2001,and the Spring Meetings held in Washington, D .C . , in April2002.

The IMF continued to seek a constructive dialogue withcivil society on globalization and other important issuesthroughout FY2002.• IMF staff had numerous contacts and participated in about

60 seminars and meetings with civil society group duringFY2002, including nongovernmental, labor, and religiousorganizations. The Managing Director participated in two"town hall" meetings with N G O representatives—at theMinistry of Finance in Berlin in September 2001, and dur-ing the international Poverty Reduction Strategy Paper(PRSP) review conference held in Washington, D .C . , inJanuary 2002.

• During FY2002, the Managing Director maintained regu-lar contact with the private financial sector, includingthrough the Capital Markets Consultative Group( C M C G ) . The C M C G met in Hong Kong SAR (May2001), in New York (October 2001), and in Frankfurt(March 2002). The meetings focused generally on theworld economic outlook, vulnerabilities in emerging andother markets, and cooperation between the official and

private sectors on issues such as crisis prevention andresolution.Management and staff continued to meet with legislatorsin various countries on topics ranging from IMF reform tospecific country issues. IMF staff also organized and/orparticipated in a number of special seminars with parlia-mentarians from many countries. In April 2002, forexample, the IMF, together with the National Assembly ofKenya, organized a workshop on managing an economy.The workshop provided an opportunity for senior IMFstaff and parliamentarians to discuss various topics of com-mon interest, including the importance of macroeconomicstability and poverty reduction, good governance, financialsector reforms, and the social dimension of reforms.The I M F organized, and beginning in FY2002 broadcastlive over the Internet, a series of Economic Forums on topi-cal issues ranging from "The Euro—Ready or Not" to"New Ideas for Reducing Poverty" and "Globalization—North-South Linkages." Economic Forums are alwaysopen to the public, free of charge.IMF staff became more active in engaging students and theacademic and policy research community in the Washington,D.C . , area. IMF staff participated in discussions and gavepresentations on topics related to the work of the IMF,including globalization and trade. Two new multilingualeducational segments, " I M F in Action," intended to helpstudents better understand what the IMF does, and "Mon-etary Mania," a quiz show about money, economics, andmonetary policy, were developed and added to the website.The IMF Center, which opened in 2001 at IMF headquar-ters, hosted 12,000 visitors and held briefings on financialand monetary issues for a growing number of visitinggroups in FY2002. Directly accessible to the general pub-lic, the center featured a new exhibit, "The Artistry ofAfrican Currency," complementing its permanent exhibit,"Money Matters," on the history of global cooperation infinancial and monetary policy.The IMF's community relations program continued toassist less fortunate members of the Washington area com-munity in FY2002. IMF staff carried out extensivevolunteer work in the Washington metro region and, insome cases, overseas. Through the IMF Civic Program,over $650,000 was donated to charities working to reducepoverty in the Washington, D .C . , metropolitan region andin low-income countries, and surplus goods—such as usedcomputers and furniture—were donated to charitable andeducational organizations.

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A P P E N D I X V

Table V.1Publications and Videos Issued, Financial Year Ended Apri l 30, 2002* Available in English and selected other languages in full text on the IMF's website (www.imf.org).

Reports and Other DocumentsAnnual Report of the Executive Board for the Financial Year EndedApril 30, 2001 *(Chinese, English, French, German, and Spanish). Free.Annual Report on Exchange Arrangements and ExchangeRestrictions, 2001$95; $47.50 to full-time university faculty members and students.Summary Proceedings of the Fifty-Fifth Meeting of the Board ofGovernors (2000).* Free.The IMF Committee on Balance of Payments Statistics, AnnualReport, 2001.* Free.Selected Decisions and Selected Documents of the InternationalMonetary Fund. Free.By-Laws, Rules, and Regulations, Fifty-Eighth Edition. (May 2001)(English, French, and Spanish). Free.IMF Financial Statement, Quarters ended April 30, 2001; October31, 2001; January 31, 2002. Free.

Periodic PublicationsBalance of Payments Statistics YearbookVol . 52, 2001. A two-part yearbook. $78 a year.Direction of Trade StatisticsQuarterly, with yearbook. $128 a year; $89 to full-time universityfaculty members and students. $45 for yearbook only.Finance and Development*Quarterly (Arabic, Chinese, English, French, and Spanish). Free bysubscription. Airspeed delivery, $20. Individual copies, $10.Government Finance Statistics YearbookVol . 25, 2001 (Introduction and titles of lines in English, French,and Spanish). $65.

International Financial StatisticsMonthly, with yearbook (English). $286 a year; $199 to full-timeuniversity faculty members and students. $72 for yearbook only.International Financial Statistics is also available on C D - R O M ; priceinformation is available on request.IMF Staff Papers*Three times a year. $56 a year; $28 to full-time university facultymembers and students.

IMF Staff Papers: Special Issue: Transition Economies: How MuchProgress? 2001. $18.

IMF Staff Papers: Special Issue of the Proceedings of the First AnnualResearch Conference, 2001. $18.IMF Research Bulletin *Quarterly. Free.

IMF Survey*Twice monthly, once in December (English, French, and Spanish).Private firms and individuals are charged an annual rate of $79.Annual bound editions available for $89: Vol . 30-2001 (English),Vol . 29-2000 (English), Vo l . 29-2000 (French), and Vol . 29-2000(Spanish).

Occasional PapersNo. 206. The Dominican Republic: Stabilization, Structural Reform,and Economic GrowthAlessandro Giustiniani, Werner C. Keller, and Randa E. Sab. 2001.

No. 207. Malaysia: From Crisis to RecoveryKanitta Meesook, Il Houng Lee, Olin Liu , Yougesh Khatri, NataliaTamirisa, Michael Moore, and Mark H . Krysl. 2001.

No. 208. Yemen in the 1990s: From Unification to Economic ReformKlaus Enders, Sherwyn Williams, Nada Choueiri, Yuri Sobolev, andJan Walliser. 2002.

No. 209. Methodology for Current Account and Exchange RateAssessmentsPeter Isard, Hamid Faruqee, G. Russell Kincaid, and MartinFetherston. 2001.

No. 210. IMF-Supported Programs in Capital Account CrisesAttis Ghosh, Timothy Lane, Marianne Schulze-Ghattas, Ales Bulir,Javier Hamann, and Alex Mourmouras. 2002.

No. 211. Capital Account Liberalization and Financial SectorStabilityA staff team led by Shogo Ishii and Karl Habermeier. 2002.

No. 212. Financial Soundness Indicators: Analytical Aspects andCountry PracticesV . Sundararajan, Charles A. Enoch, Armida San Jose, Paul H . Hilbers,Russell C. Krueger, Marina Moretti, and Graham L. Slack. 2002.

No. 213. The Baltic Countries: Medium-Term Fiscal Issues Related toEU and NATO AccessionJohannes Mueller, Christian Beddies, Robert Burgess, VitaliKramarenko, and Joannes Mongardini. 2002.

No. 214. Advanced Country Experiences with Capital AccountLiberalizationAge Bakker and Bryan Chappie. 2002. (Forthcoming)

No. 215. Improving Large Taxpayers' Compliance: A Review ofCountry ExperienceA Staff Team led by Katherine Baer. 2002.Recent Occasional Papers are available for $20 each, with a price of$17.50 each to full-time university faculty members and students.

World Economic and Financial SurveysWorld Economic Outlook *A Survey by the Staff of the International Monetary Fund.Twice a year (April and September) (Arabic, English, French, andSpanish).$42; $35 to full-time university faculty members and students.

World Economic Outlook Interim Assessment (December 2001)The Global Economy After September 11, $42; $35.

Official Financing for Developing Countries, $42; $35.

Global Financial Stability Report, March 2002Four times a year. $42; $35 to full-time university faculty membersand students.International Capital Markets: Developments, Prospects, and KeyPolicy Issues* (discontinued)By a staff team led by Donald J. Mathieson and Garry J. Schinasi.$42; $35 to full-time university faculty members and students.

Books and Seminar VolumesCan the Poor Influence Policy? Participatory Assessments in theDeveloping WorldCaroline M . Robb. $22.Capacity Building, Governance, and Economic Reform in AfricaMichel A. Dessart and Roland E. Ubogu. $19.Developing Government Bond Markets: A HandbookPrepared by the staff of the World Bank and the InternationalMonetary Fund. $40.Financial Risks, Stability, and GlobalizationOmotunde E. Johnson. $40.

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Table V.1 (concluded)Silent Revolution: The International Monetary Fund, 1979-1989James M . Boughton. $75.Into the EU: Policy Frameworks in Central EuropeRobert A. Feldman and C. Maxwell Watson. $26.Macroeconomic Management: Programs and PoliciesMohsin S. Khan, Saleh M . Nsouli, and Chorng-Huey Wong (editors).$28.Macroeconomic Issues and Policies in the Middle East and North AfricaZubair Iqbal, Olumyiwa S. Adedeji, Rina Bhattacharya, Nigel A .Chalk, Pierre Dhonte, Mohamad H . Elhage, and S. Nuri Erbas. $28.The Modern VATLiam P. Ebrill, Michael J. Keen, Jean-Paul Bodin, and Victoria P.Summers. $35.The West Bank and Gaza: Economic Performance, Prospects, andPolicies: Achieving Prosperity and Confronting Demographic ChallengesRosa A. Valdivieso, U . Erickson von Allmen, Geoffrey J. BannisterWilliams, Hamid R. Davoodi, Felix P. Fischer, and Eva R. Jenkner. $25.Manuals and GuidesFinancial Derivatives: A Supplement to the 5th Edition, Balance ofPayments Manual (Arabic, Chinese, English, French, Russian,Spanish). $21.Government Finance Statistics Manual. $50.Guidelines for Public Debt Management. $22.International Reserves and Foreign Currency Liquidity: Guidelines fora Data Template (English and Spanish). Anne Y. Kester. $23.Monetary and Financial Statistics Manual (French, Russian, Spanish).$35.50Quarterly National Accounts Manual: Concepts, Data Sources, andCompilation (French, Spanish). $40.Manual on Fiscal Transparency (English, French). $19.50Programacion financiera: Metodos y aplicacion al caso de Colombia.$26.50Economic Issues*No. 22. The Challenge of Predicting Economic Crises (Arabic)Andrew Berg and Catherine Pattillo. 2000. Free.No. 23. Promoting Growth in Sub-Saharan Africa: Learning WhatWorks (Arabic, Russian)Anupam Basu, Evangelos Calamitsis, and Dhaneshwar Ghura. 2000.Free.No. 24. Full Dollarization: The Pros and Cons (Arabic, Chinese, andFrench)Andrew Berg and Eduardo Borensztein. 2000. Free.No. 25. Controlling Pollution Using Taxes and Tradable Permits(Arabic, Chinese, French, Russian, and Spanish)John Norregaard and Valerie Reppelin-Hill. 2000. Free.No. 26. Rural Poverty in Developing Countries: Implications for PublicPolicy (Chinese, French, Russian, and Spanish)Mahmood Hasan Khan. 2001. Free.

No. 27. Tax Policy for Developing Countries (Arabic, Chinese, French,Russian, and Spanish)Vito Tanzi and Howell H . Zee. 2001. Free.No. 28. Moral Hazard: Does IMF Financing Encourage Imprudenceby Borrowers and Lenders?Timothy D . Lane and Steven T. Phillips. 2002. Free.No. 29. The Pension Puzzle: Prerequisites and Policy Choices in PensionDesignNicholas Barr. 2002. Free.

No. 30. Hiding in the Shadows: The Growth of the UndergroundEconomyFriedrich Schneider, with Dominik Enste. 2002. Free.

PamphletsDebt Relief for Poverty Reduction: The Role of the Enhanced HIPCInitiative. Free.

Macroeconomic Policy and Poverty ReductionBrian Ames, Ward Brown, Shanta Devarajan, and AlejandroIzquierdo. Free.

A New Approach to Sovereign Debt RestructuringAnne O. Krueger. Free.

The IMF and the Silent Revolution: Global Finance and Developmentin the 1980s. Free.

What Is the International Monetary Fund? A Guide to the IMF(Arabic, Chinese, Russian, and Spanish). Free.

LeafletsIMF—Making the Global Economy Work for All. Free.

Working Papers and Policy Discussion Papers*IMF Working Papers and Policy Discussion Papers are designed tomake IMF staff research available to a wider audience. They representwork in progress and reflect the views of the individual authors ratherthan those of the IMF.

Working Papers 01/49-01/216 and 02/01-/02-105 were issued inFY2002.$10 each; $290 for annual subscription.

Policy Discussion Papers 02 /01-02/07 were issued in FY2002.$10 each; annual subscription is included as part of the subscriptionto Working Papers.

Country Reports*

IMF Country Reports provide comprehensive material on economicdevelopments and trends in member countries, including keystatistics.

Country Reports 01/67-01/226 and 02/01-02/128 were issued inFY2002. $15 each.

VideosUganda: A Different Drummer (NTSC, PAL) English. $19.50

Copies of IMF publications and videos may be obtained from PublicationServices, International Monetary Fund, 700 19th Street, N.W.,Washington, D.C. 20431, U.S.A.Telephone: (202) 623-7430Telefax: (202) 623-7201E-mail: [email protected]: http://www.imf.org

Additional information about the IMF and its publications and videos—including the current Publications Catalog, a searchable IMF PublicationsDatabase, and ordering information and forms—is available on the WorldWide Web (www.imf.org).


APPENDIX

Press Communiques of the International Monetary andFinancial Committee and the Development Committee

International Monetary and Financial Committee of the Board of Governorsof the International Monetary Fund

P R E S S C O M M U N I Q U E S

Fourth Meeting, Ottawa, Canada,November 17, 2001

1. Recognizing the need for a determined and cooperativepolicy response to the challenges facing the world economy,the International Monetary and Financial Committee held itsfourth meeting in Ottawa on November 17, 2001, under theChairmanship of Mr . Gordon Brown, Chancellor of theExchequer of the United Kingdom. The Committee expressesits gratitude to Finance Minister Paul Martin and the Cana-dian government for hosting this meeting and for theexcellent arrangements.

2. The Committee notes that the September 11 terroristattacks have prolonged the slowdown in the world economy.Bold policy action has already been taken to support a robustrecovery during 2002, but the outlook remains subject toconsiderable uncertainty. Continuing vigilance is needed, andit is essential that the international community stands ready totake timely action to maintain stability and invigorate growth.The Committee welcomes the Managing Director's Octo-ber 5 statement on the situation of the world economy andthe IMF response, which outlines a collaborative approach togive a new momentum to the world economy. The IMF has acentral role to play, including through a strengthened focuson surveillance, in ensuring global macroeconomic and finan-cial stability and in ensuring that globalization works for thebenefit of all.

3. The advanced economies have a key responsibility topromote early recovery in global growth. The recent easing ofmonetary policy in the United States, the euro area, and otheradvanced economies is welcome, and the authorities standready to take further action if appropriate. While the scope fordiscretionary fiscal policy action varies across countries, theadvanced economies should allow automatic stabilizers tooperate. The Committee stresses that determined implemen-tation of structural reforms to take advantage of the promiseof technology for increased productivity is important torestore confidence and growth. Japan, in particular, needs tomove ahead with vigorous reforms of its banking and corpo-rate sectors, and Europe should give priority to acceleratinglabor and product market reforms. The United States stands

ready to take further action to support growth, consistentwith maintaining sound public finances in the medium term.

4. Increased trade opportunities will play a vital role in therecovery, and the Committee strongly welcomes the outcomeof the Doha meeting of the World Trade Organization andthe Doha Development Agenda. Al l countries should standfirm against protectionist pressures, and the advancedeconomies, in particular, should improve access to their mar-kets and reduce trade-distorting subsidies both for the benefitof their own citizens and to provide critical support for devel-oping countries. The IMF should strengthen its surveillanceof these issues and help promote international efforts to openmarkets. The Committee is vigilant on stability in the oil mar-ket at prices reasonable for consumers and producers.

5. Emerging markets and developing countries are facing aweakening of global demand, reduced capital flows, higherrisk aversion in financial markets, reduced income fromtourism, and lower and more volatile commodity prices.Sound and proactive policies in these countries will be critical.The IMF stands ready to provide additional financial assis-tance, where needed, to those countries pursuing soundpolicies. The IMF has a range of instruments available and itscurrent financial position is strong. The I M F should be readyto adjust its policies if necessary. The Contingent Credit Line(CCL) is an important signal of the strength of countries'policies and a safeguard against contagion in financial mar-kets, and the Committee encourages eligible countries toconsider applying for it. The Committee also underscores thecritical importance of involving the private sector in theprevention and resolution of financial crises. The Committeerecommends an early implementation of the FourthAmendment.

6. The Committee expresses particular concern at theadverse impact of the global slowdown on low-income coun-tries and heavily indebted poor countries (HIPCs). It calls onthe I M F , in close collaboration with the World Bank, torespond flexibly and proactively to the needs of these coun-tries, including through additional concessional financing anddebt relief where appropriate. The Committee welcomes theadditional contributions to the Poverty Reduction andGrowth Facility (PRGF), and encourages further contribu-

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VI



tions. The IMF, working closely with the World Bank, shouldintensify its efforts within the Poverty Reduction StrategyPaper (PRSP) framework to assess the poverty and socialimpacts of reforms on the poor. The Committee looks for-ward to discussing the findings of the PRGF and the PRSPReviews at the Spring Meetings next year. The enhancedH I P C Initiative framework provides for the consideration ofadditional assistance at the completion point if there has beena fundamental change in a country's economic circumstancesdue to exceptional exogenous shocks. The Committee recog-nizes the need to take into account worsening global growthprospects and declines in terms of trade when updating H I P CInitiative debt sustainability analyses at completion point. Itencourages the heavily indebted poor countries to continueto work expeditiously toward meeting the conditions that willsecure access to debt relief and ensure its effective use, includ-ing through the maintenance of sound economic policies.Advanced economies must also be prepared to meet their spe-cial responsibility in providing increased developmentassistance and debt relief to tackle the increased challenges ofpoverty reduction, and to achieve the Millennium Develop-ment Goals. The Committee reiterates the importance of follyfinancing the enhanced H I P C Initiative, and it urges bilateraldonors to fulfill this commitment.

7. Recognizing the importance of close collaboration andeffective partnership among the community of internationalinstitutions in this endeavor, Committee members look for-ward, with their colleagues in the Development Committee,to their joint discussion with the U N Secretary-General,Mr. Kofi Annan, on how best to work together to meet thechallenges ahead, including in the context of the upcomingConference on Financing for Development.

8. The Committee expresses grave concern at the use ofthe international financial system to finance terrorist acts andto launder the proceeds of illegal activities. It therefore calls onall member countries to ratify and implement folly the U Ninstruments to counter terrorism, particularly United NationsSecurity Council Resolution 1373, and welcomes and supportsthe Special Recommendations of the Financial Action TaskForce (FATF) to combat terrorist financing. Each membershould freeze, within its jurisdiction, the assets of terrorists andtheir associates, close their access to the international financialsystem, and, consistent with its laws, make public the list ofterrorists whose assets are subject to freezing and the amountof assets frozen, if any, with monthly reports. The fight againstmoney laundering and the financing of terrorism requires theactive participation of both financial intermediaries and thepublic sector. The Committee endorses the IMF's action planto intensify, where consistent with its mandate and expertise,its contribution to this global effort, namely by:

• extending the IMF's involvement beyond anti-moneylaundering to efforts aimed at countering terrorismfinancing;

• expanding its anti-money-laundering work, includingthrough Financial Sector Assessment Programs(FSAPs), to cover legal and institutional frameworks;

• accelerating its program of Offshore Financial Centerassessments, and undertaking onshore assessments inthe context of the FSAP;

• helping countries identify gaps in their anti-money-laundering and anti-terrorist-financing regimes in thecontext of Article IV voluntary questionnaires;

• enhancing its collaboration with the FATF on develop-ing a global standard covering the FATFrecommendations, and working to apply the standardon a uniform, cooperative, and voluntary basis; and

• increasing technical assistance to enable members toimplement effectively the agreed international standards.

In addition, the Committee urges further international actionto combat the financing of terrorism, and calls for:

• all countries to establish financial intelligence units toreceive and process reports of suspicious transactionsfrom the country's financial sector, and to monitor andanalyze suspected terrorist funds;

• provisions to ensure the sharing of information andcooperation between national financial intelligenceunits, building on the work of the Egmont Group; and

• the deployment of technical assistance to ensure thatevery country can play its part, based on support eitherbilaterally or through an international trust fond.

Countries are urged to take these measures as soon as possi-ble, preferably by February 1, 2002.

The IMF should report on progress at its Spring 2002Meeting, with a full report at its Annual Meeting.

9. The Committee encourages the IMF to continue tostrengthen its surveillance and crisis prevention, includingthrough the implementation of standards and codes (andrelated technical assistance), and emphasizes that theseremain key priorities. It calls on the IMF to implement theagreed framework for private sector involvement, and tointensify the ongoing analysis of outstanding issues. Itwelcomes the progress on improving the effectiveness of con-ditionality through streamlining and enhancing the countryownership of IMF-supported programs, and looks forward toreviewing progress in this area at its next meeting. Quotasshould reflect developments in the international economy.The Committee looks forward to further work on this issue.The Committee looks forward to the Independent EvaluationOffice (IEO) finalizing its work program and to receiving aprogress report on its activities at the next meeting.

10. The Committee expresses its heartfelt appreciation toStanley Fischer and Jack Boorman for their eminent recordsof service to the IMF and deep commitment to the well-being of all its member countries. Both have been pivotal inshaping the role of the IMF in the globalized economy andthe evolving international financial architecture.

11. The next meeting of the I M F C will be held in Wash-ington, D .C . on April 21, 2002.

Annex: International Monetary and FinancialCommittee Attendance

November 17, 2001Chairman

Gordon Brown

Managing DirectorHorst Kohler

Members or AlternatesHamad Al-Sayari, Governor, Saudi Arabian Monetary Agency

(Alternate for Ibrahim A. Al-Assaf, Minister of Financeand National Economy, Saudi Arabia)

Sir Edward George, Governor, Bank of England(Alternate for Gordon Brown, Chancellor of the Exche-quer, United Kingdom)


A P P E N D I X VI

Domingo Cavallo, Minister of Economy, ArgentinaPeter Costello, Treasurer, AustraliaDai Xianglong, Governor, People's Bank of ChinaM.R. Pridiyathorn Devakula, Governor, Bank of ThailandEmile Doumba, Minister of Finance, Economy, Budget and

Privatization, GabonErnst Welteke, President, Deutsche Bundesbank

(Alternate for Hans Eichel, Federal Minister of Finance,Germany)

Laurent Fabius, Minister of Economy, Finance and Industry,France

Francisco Gil Diaz, Secretary of Finance and Public Credit,Mexico

Sultan Bin Nasser Al-Suwaidi, Governor, Central Bank of theUnited Arab Emirates(Alternate for Mohammed K. Khirbash, Minister of Statefor Finance and Industry, United Arab Emirates)

Aleksei Kudrin, Deputy Chairman of the Government andMinister of Finance, Russian Federation

Mohammed Laksaci, Governor, Banque d'AlgeriePedro Sampaio Malan, Minister of Finance, BrazilPaul Martin, Minister of Finance, CanadaMrs. Linah K. Mohohlo, Governor, Bank of BotswanaSauli Niinisto, Minister of Finance, FinlandPaul H . O'Neill , Secretary of the Treasury, United StatesDidier Reynders, Minister of Finance, BelgiumMasaru Hayami, Governor, Bank of Japan

(Alternate for Masajuro Shiokawa, Minister of Finance,Japan)

Yashwant Sinha, Minister of Finance, IndiaGiulio Tremonti, Minister of Economy and Finance, ItalyJean-Pierre Roth, Chairman of the Governing Board, Swiss

National Bank(Alternate for Kaspar Villiger, Minister of Finance,Switzerland)

Gerrit Zalm, Minister of Finance, Netherlands

ObserversMary W. Covington, Associate Director of the Washington

Branch, International Labor Organization (ILO)Andrew D. Crockett, Chairman, Financial Stability Forum

(FSF)Nitin Desai, Under-Secretary-General for Economic and

Social Affairs, United Nations (UN)Willem F. Duisenberg, President, European Central Bank

(ECB)John William Hancock, Counsellor, Trade and Finance

Division, World Trade Organization (WTO)Andre Icard, Assistant General Manager, Bank for Interna-

tional Settlements (BIS)Jan Allen Kregel, High Level Expert in International Finance,

United Nations Conference on Trade and Development( U N C T A D )

Klaus Regling, Director-General, European CommissionYashwant Sinha, Chairman, Joint Development CommitteeIgnazio Visco, Head, Economics Department, Organization

for Economic Cooperation and Development (OECD)James D. Wolfensohn, President, World Bank

Fifth Meeting, Washington, D.C., April 20, 20021. The International Monetary and Financial Committee

held its fifth meeting in Washington, D .C . on April 20, 2002,

under the Chairmanship of Mr . Gordon Brown, Chancellorof the Exchequer of the United Kingdom. The Committeewelcomes the international community's decisive policyactions, especially following the tragic events of September11, 2001, to maintain financial stability, restore the momen-tum of world economic growth, and reinvigorate the fightagainst poverty. We will also sustain our global action tocombat money laundering and the financing of terrorism.Our meeting in Ottawa last November emphasized theimportance of a collaborative approach for the IMF and itsmembers. Going forward, we will continue to work togetherfor sustained, broad-based growth, creating opportunities forproductive employment, reducing vulnerabilities, opening upour economies for trade, and providing resources for durablepoverty reduction.

The Global Economy2. Since the Committee's last meeting, the prospects for

the world economy have improved markedly. The challengenow is for governments to help foster the global recovery thatis under way. This will require continued vigilance and a fur-ther strengthening of medium-term policy frameworks—bothto improve prospects for sustainable growth and stability, andto reduce vulnerabilities. The Committee notes the uncertain-ties associated with the international security issues aroundthe world. The Committee notes also the deteriorating situa-tion in the Middle East. The Committee underscores theimportance of stability in oil markets at prices reasonable forconsumers and producers.

3. The advanced economies have a responsibility to pro-mote a strong and sustained world economic recovery. Whilekeeping inflation under control, monetary policies shouldremain broadly supportive of growth. In countries where therecovery is more advanced, consideration may need to begiven in the months ahead to reversing earlier policy easing.Reforms should be pursued vigorously, with the aim ofimproving economic flexibility and resilience, contributing tohigh and sustainable world growth, and supporting theorderly reduction of persistent imbalances in the global econ-omy. This process will be helped, in Japan, by decisive actionto reform the banking and corporate sectors, along withmonetary easing to help end deflation; in Europe, by contin-ued progress with wide-ranging reforms to enhance itsgrowth potential; and in the United States, by focusing onthe efforts needed over the medium term to preserve fiscalbalance.

4. The recovery in industrial countries will contribute tosupporting activity in emerging market and developing coun-tries. The Committee is encouraged that many emergingmarket economies have become more resilient by the adop-tion of sound economic policies—including more sustainableexchange rate regimes. It will nevertheless remain crucial tofurther strengthen fiscal positions, and to press ahead withcorporate, financial, and institutional reforms to support theemerging recovery and attract foreign direct investment.Improved differentiation and risk assessments by markets haveserved to limit so far the contagion effects of the Argentinecrisis. The Committee acknowledges the steps being taken byArgentina to address its difficult economic situation, andurges the authorities, in cooperation with the Fund, to movequickly to reach agreement on a sustainable economic pro-gram that could receive the support of the international

138 A N N U A L R E P O R T 2 0 0 2



financial institutions and provide the basis for the reestablish-ment of stability and growth.

5. The Committee strongly welcomes the commitment bythe international community, at the U N Conference in Mon-terrey, to improve living standards and reduce povertythrough sound policies and higher and more effective aid. Itfully supports the New Partnership for Africa's Developmentand its call for strong domestic ownership, sound policies,strengthened institutions, and improved governance. TheCommittee welcomes recent announcements of increased andmore effective aid, and urges further progress. The MonterreyConsensus will constitute an important input to the WorldSummit on Sustainable Development in Johannesburg. TheCommittee also welcomes the new initiative to enhancegrowth and reduce poverty in low-income CIS countries.

6. The Committee stresses the vital importance of moreopen trade for a durable economic recovery, and for sustained,broad-based growth in the developing countries in particular.It urges all countries to resist protectionist pressures and tocontinue to lower trade barriers, concluding the Doha traderound successfully and in a timely manner. Enlarging marketaccess for developing countries and phasing out trade -distorting subsidies will benefit both developed and developingcountries. The Committee welcomes the commitment, reiter-ated at Monterrey, to work toward the objective of duty- andquota-free market access to the exports of least-developedcountries. It also notes the potential for increased opportuni-ties from lowering trade barriers among developing countries.

Strengthening Crisis Prevention and Resolution7. Surveillance remains central to the IMF's mandate to

promote sound economic growth and financial stability, andto help prevent crises. The Committee is encouraged by thesubstantial progress in recent years to adapt and broaden thecoverage of surveillance in response to a changing globalenvironment, while focusing on issues central to economicand financial stability.

8. The Committee calls on the IMF to spare no effort inenhancing the high quality of its policy advice, and on mem-bers to implement this advice. Surveillance will be furtherenhanced by:

• strengthened assessments of vulnerabilities, with partic-ular attention to debt sustainability and the privatesector's balance sheet exposure;

• focusing on the global impact of the policies, includingtrade policies, of the largest economies;

• more candid and comprehensive assessments ofexchange arrangements and exchange rates;

• expansion of substantive financial sector surveillance tothe entire membership, including to offshore financialcenters;

• strengthened coverage of relevant structural and institu-tional issues;

• on issues outside the IMF's core expertise, more effec-tive use of the expertise of appropriate outsideinstitutions, in particular the World Bank;

• further integration of multilateral, regional, and coun-try surveillance; and

• deeper coverage of international capital markets.The Committee notes that the process of surveillance shouldcover effective and timely reassessments of economic condi-tions and policies. In program countries, this may require a

fresh perspective and appropriate distance from day-to-dayprogram implementation issues.

9. The Committee encourages the IMF to press aheadwith the range of recent initiatives designed to enhance theeffectiveness of surveillance and crisis prevention. Theseinclude the Financial Sector Assessment Program (FSAP) andpolicies on transparency, including encouraging publicationof Article IV and other IMF reports. Further work on stan-dards and codes is a crucial item in the forward agenda tostrengthen their relevance and contribution to IMF surveil-lance, and to ensure that countries have adequate access totechnical assistance. The Committee encourages eligiblecountries to consider applying for the Contingent Credit Line(CCL) , and looks forward to a review.

10. The Committee endorses the IMF's work program tostrengthen the existing Prague framework for crisis resolu-tion, in particular to provide members and markets withgreater clarity and predictability about the decisions the IMFwill take in a crisis. This will involve:

• improving debt sustainability assessments;• clarifying the policy on access to IMF resources for

members facing financial crises—with access beyondnormal limits requiring more substantial justification,and recognizing that some of these members' quotasdo not adequately reflect their potential financingneeds;

• strengthening the tools for securing private sectorinvolvement; and

• examining a more orderly and transparent frameworkfor addressing the exceptional cases in which a sover-eign needs to restructure an unsustainable debt, as wellas clarifying the conditions under which the IMF wouldbe prepared to lend into arrears.

The Committee welcomes the consideration of innovativeproposals to improve the process of sovereign debt restructur-ing to help close a gap in the current framework. Itencourages the Fund to continue to examine the legal, insti-tutional, and procedural aspects of two approaches, whichcould be complementary and self-reinforcing: a statutoryapproach, which would enable a sovereign debtor and asuper-majority of its creditors to reach an agreement bindingall creditors; and an approach, based on contract, whichwould incorporate comprehensive restructuring clauses indebt instruments. The Committee looks forward to reviewingprogress in this area at its next meeting.

The IMF's Role in Low-Income Countries11. The Committee fully endorses the Monterrey Consen-

sus, which has reaffirmed that sound economic policies andinstitutions, together with strong, broad-ranging interna-tional support, are the twin pillars on which to build enduringpoverty reduction. It encourages the IMF to work closelywith the U N , the World Bank, the regional developmentbanks, and bilateral donors in developing a comprehensiveand transparent system to monitor progress toward the M i l -lennium Development Goals.

12. The Committee welcomes the outcome of the recentreviews of the IMF's Poverty Reduction and Growth Facility(PRGF) and of the Poverty Reduction Strategy Paper (PRSP)approach. The PRSP process should continue to be nurturedas the suitable framework for fostering the efforts of low-income countries and their international partners to achieve

A N N U A L R E P O R T 2 0 0 2 139


A P P E N D I X VI

poverty reduction and higher growth. The substantialprogress under PRGF-supported programs in implementingthe PRSP approach will be further enhanced by better identi-fying the sources of sustained growth, strengthening publicexpenditure management, and using poverty and socialimpact analysis more systematically. The Committee encour-ages the IMF and the Bank to continue their collaboration oneach of these issues and looks forward to reviewing progressat its next meeting. Capacity building will remain a potentvehicle for ensuring ownership and enhancing the implemen-tation of effective poverty reduction strategies, and theCommittee looks forward to the review of technical assistanceleading to its increased effectiveness. The Committee wel-comes, in particular, the African Regional TechnicalAssistance Centers (AFRITACs), whose establishment willsupport the New Partnership for Africa's Development, andlooks forward to the timely financing of this initiative.

13. The recovery of low-income countries that have beenaffected by the recent economic slowdown and commodityprice shocks will continue to require particular attention. TheCommittee supports the IMF's continued readiness torespond flexibly and proactively to the financing needs oflow-income countries, including by augmenting PRGFfinancing where necessary. It recognizes that there may be aneed to consider mobilizing new PRGF resources if the highdemand for PRGF financing continues. While the Committeeis encouraged by the progress with the implementation of theHIPC Initiative, it notes that, in a number of cases, debt sus-tainability remains an issue and calls on the IMF and WorldBank to review the situation. It urges eligible countries tostep up their reform efforts to reach their decision and com-pletion points, noting, in this context, the flexibilityembedded in the H I P C Initiative framework to accommodatethe special circumstances of countries emerging from conflict.The Committee notes the application within the currentguidelines of the topping-up feature designed to help coun-tries cope with exceptional exogenous shocks. It calls forfurther efforts to enhance debt management in HIPCs andcontinued close monitoring of their debt sustainability as theymove toward, and beyond, their completion points.

14. The Committee welcomes the initial progress madetoward enhancing the effectiveness of IMF-supported pro-grams through streamlined and focused conditionality andstrong national ownership of economic reforms. It urges fur-ther progress, in cooperation with the Bank, and looksforward to a report on these issues, including on the IMF'sconsideration of new conditionality guidelines, at its nextmeeting.

Combating Money Laundering and the Financingof Terrorism

15. The Committee underscores that international effortsto counter abuse of the international financial system tofinance terrorism and launder the proceeds of illegal activitiesremain a priority. It is encouraged by the response by manycountries to its call last November for all countries to ratifyand implement fully the U N instruments to counter terrorismfinancing, to freeze terrorist assets, and to establish financialintelligence units and ensure the sharing of information. The

Committee urges countries that have not as yet done so tofully implement and comply with these instruments. It alsowelcomes the substantial progress made by the IMF, in closecollaboration with the World Bank, in implementing all ele-ments of its action plan to intensify the work on anti-moneylaundering and combating the financing of terrorism( A M L / C F T ) . The Committee notes in particular the goodstart made in assessing gaps in national A M L / C F T regimes,and fully supports the provision of technical assistance to helpcountries identify and address such gaps.

16. While reiterating the responsibility of national authori-ties for combating money laundering and the financing ofterrorism, the Committee stresses that success will criticallydepend on continued vigilance and timely action at the globallevel. It calls on the IMF to make further progress on all ele-ments of its work program, consistent with its mandate andexpertise. In particular, efforts should now be focused oncompleting the comprehensive A M L / C F T methodology,based on a global standard covering the Financial Action TaskForce (FATF) recommendations, and the development ofassessment procedures compatible with the uniform,voluntary, and cooperative nature of the ROSC 1 process.Enhancing the delivery of technical assistance on A M L / C F Twill also be crucial. The Committee urges the Fund, in coop-erating with other international organizations and donorcountries, to identify and respond to needs for technical assis-tance. It looks forward to receiving a full report on progressin this area at its next meeting. The Committee calls on mem-bers to share information on their own actions in this field.

Other Issues17. The Committee notes that the Twelfth General

Review of IMF Quotas has commenced. Quotas shouldreflect developments in the international economy. TheCommittee recommends an early implementation of theFourth Amendment.

18. The Committee welcomes the progress report on theIndependent Evaluation Office, and looks forward to receiv-ing regular updates on its activities.

Next Meeting19. The next meeting of the IMFC will be held in Wash-

ington, D.C. on September 28, 2002.

Annex: International Monetary and FinancialCommittee Attendance

April 20, 2002ChairmanGordon Brown

Managing DirectorHorst Kohler

Members or AlternatesIbrahim A. Al-Assaf, Minister of Finance and National

Economy, Saudi ArabiaSir Edward George, Governor, Bank of England

(Alternate for Gordon Brown, Chancellor of theExchequer, United Kingdom)

1ROSCs are Reports on the Observance of Standards and Codes.

140 A N N U A L R E P O R T 2 0 0 2

Streamlining Conditionality andEnhancinq Ownership



Ian Campbell, Parliamentary Secretary to the Treasurer,Australia(Alternate for Peter Costello, Treasurer, Australia)

Dai Xianglong, Governor, People's Bank of China)Rodrigo de Rato y Figaredo, Second Vice President and

Minister of Economy, SpainHans Eichel, Federal Minister of Finance, GermanyNicolas Eyzaguirre, Minister of Finance, ChileLaurent Fabius, Minister of Economy, Finance and Industry,

FranceGeir H . Haarde, Minister of Finance, IcelandSultan Bin Nasser Al-Suwaidi, Governor, United Arab

Emirates Central Bank(Alternate for Mohammed K. Khirbash, Minister of Statefor Finance and Industry, United Arab Emirates)

Aleksei Kudrin, Deputy Chairman of the Government andMinister of Finance, Russian Federation

Mohammed Laksaci, Governor, Banque d'AlgeriePedro Sampaio Malan, Minister of Finance, BrazilPaul Martin, Minister of Finance, CanadaMs. Linah K. Mohohlo, Governor, Bank of BotswanaPaul H . O'Neill, Secretary of the Treasury, United StatesDidier Reynders, Minister of Finance, BelgiumAgus Haryanto, Secretary General, Ministry of Finance

(Alternate for Syahril Sabirin, Governor, Bank of Indonesia)Masajuro Shiokawa, Minister of Finance, JapanYashwant Sinha, Minister of Finance, IndiaPaul Toungui, Minister of State, Minister of Finance,

Economy, Budget and Privatization, Gabon

Giulio Tremonti, Minister of the Economy and Finance, ItalyKaspar Villiger, President of the Swiss Confederation and

Minister of Finance, SwitzerlandA . H . E . M . Wellink, President, De Nederlandsche Bank N.V.

(Alternate for Gerrit Zalm, Minister of Finance, Netherlands)

Observers

Yilmaz Akyuz, Director, Division on Globalization andDevelopment Strategies, United Nations Conference onTrade and Development (UNCTAD)

Andrew D. Crockett, Chairman, Financial Stability Forum(FSF)

Willem F. Duisenberg, President, European Central Bank(ECB)

Andre Icard, Deputy General Manager, Bank forInternational Settlements (BIS)

Donald J. Johnston, Secretary-General, Organization forEconomic Cooperation and Development (OECD)

Ian Kinniburgh, Director, Development Policy AnalysisDivision, Department of Economic and Social Affairs,United Nations (UN)

Eddy Lee, Director, International Policy Group, Interna-tional Labor Organization (ILO)

Trevor A. Manuel, Chairman, Joint Development CommitteeMs. Karen McCusker, Counsellor, World Trade Organization

(WTO)Pedro Solbes Mira, Commissioner for Economic and

Monetary Affairs, European CommissionJames D. Wolfensohn, President, World Bank

Joint Ministerial Committee of the Boards of Governors of the Bank and the Fundon the Transfer of Real Resources to Developing Countries

(Development Committee)P R E S S C O M M U N I Q U E S

Sixty-Fourth Meeting, Ottawa, Canada,November 18, 2001

1. The 64th meeting of the Development Committee washeld in Ottawa, Canada, on November 18, 2001 under thechairmanship of Mr. Yashwant Sinha, Minister of Finance ofIndia. Ministers expressed their great appreciation to theCanadian Government for facilitating the holding of thismeeting under unusual circumstances.

2. Impact of Recent Events in Low- and Middle-Income Countries: Response of the World Bank Group.Ministers reviewed the impact of the September 11 terroristattacks and their aftermath on developing countries. Theyrecognized that poverty in many developing countries waslikely to worsen as these events have deepened the pre-existing global economic slowdown, which had already led toweaker exports and commodity prices, and have other morespecific impacts: e.g., increased refugee movements withincountries and across borders; reduced private investmentflows due to increased risk aversion in financial markets;reduced tourism revenues; and increased trade transactioncosts. Ministers called for further enhancing the collaborationamong the Bank Group, the IMF, the regional development

banks, and U N agencies, in their actions to help membercountries address these additional challenges and tostrengthen social safety nets. Ministers underlined the impor-tance of renewed growth in industrialized countries to theimprovement of prospects for poverty reduction in develop-ing countries.

3. Ministers reviewed the response of the World BankGroup. They stressed the importance of the Group using itsfinancial capacity and the flexibility in its available instrumentsto respond effectively and promptly to current circumstancesand emerging needs. They emphasized that financial supportshould continue to be linked to strong country performanceand reform programs in support of poverty reduction. Minis-ters agreed that, from a financial standpoint, the magnitudeof likely incremental demands on the Bank Group currentlyappears manageable, but they urged that the Board and Man-agement keep under close review the Bank Group's capacityto respond in more challenging circumstances. Ministersagreed that IDA had a particularly critical role in helping thepoorest countries manage the adverse impact of recent eventson their economies and people, and emphasized that timelyagreement on a substantial IDA 13 replenishment was essen-


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8. Making the Most of Existing Institutions. Ministersnoted that FfD offers an opportunity to establish a broad

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respective mandates, governance structures, and strengths toexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They noted

9. Integration intoffaffkfjkfjlfsjfljfljfjffjfjdMinisters agreed onexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They notedexternal partnerships of support could be based. They noted

• I U A L R E P O R T 2 0 0 2 143A N

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alia, the international financial institutions, including in areasof crisis prevent don, standards and codes, legal and regulatory

frameworks, transparency, financial sector strengthening,combating terrorist financing and other abuses, debt manage-ment , and private sector participation in the resolution of

crises. Ministers also agreed that it is important tofind pragmatic and innovative ways to continue to enhancethe effective participation of developing countries in interna-

tional catalogues and decission-making processes.10. Staying Engaged. Ministers noted that the FfD Con-

ference should be seen as part of ongoing efforts to intensifyconcerted international action for development and poverty

countries, and to improve the effectiveness and responsivenessof development cooperation. They urged that the follow-upto the Conference be seen in this context. They believe thatthe dialogue among the E C O S O C and the Bretton WoodsInstitutions offers unrealized potential, as does furtherprogress within the framework of the coordinating committeeof heads of United Nations agencies ( A C C ) . Greater

cooperation among existing institutions is needed, based on aclear understanding and respect for their respective responsi-bilities and governance structures. For example, a combined

by the Bretton Woods institutions and the UnitedNations, along with the OECD, to check periodically onprogress towards the M D G s , would provide an efficient andpractical approach for improved cooperation.11. Ministers requested their Chairman to convey these

conclusions to the President of the United Nations GeneralAssembly.

Sixty-Fifth Meeting, Washington, D.C.,April 21, 2002

1. We met today to discuss future challenges for development and an action plan for universal primary education.

2. We welcomed the very important progress achieved inMonterrey Consensus laying out a new partnership com-

pact between developed and developing countries, based onmutual responsibility and accountability, to achieve measur-

able improvements in sustainable growth and povertyreduction. We recognized the efforts of the World Bank and

the IMF, working together with the UN, in contributing tothe result . We look forward to their continue collaborationand to strengthening this new partnership as we worktowards a successful World Summit on SustainableDevelopment.

3. This new partnership for development recognizes thatcountry-owned and driven development strategies embodyingsound policies and good governance have to be the startingpoint. Such strategies need to be supported by increased andmore effective development assistance and by greater effortsto integrate developing countries into the global economy.We are committed to the implementation of these strategiesand partnerships, such as N E P A D , as part of the scaling up ofactivities that is necessary for implementing the Monterrey

Consensus and to meet the Millennium Development Goals1;we will regularly review progress at future meetings. We wel-

comed the pledges made at Monterrey by a number ofdonors to increase their official development assistance.4. The CDF/PRSP approach is increasingly providing acommon foundation for implementing the new partnership at

the country level. While recognizing that scope for improve-ment exists, we shared the positive assessment of

implementation to date, particularly in enchancing ownershipWe look forward to continued progress in extending the par-

ticpatory process for the elaboration and monitoring ofPRSP's implementing pro-poor growth policies, enhancing

collaboration to strengthen public expenditure managementand to improve poverty and social impact analysis; and,

among multilateral and bilateral development agencies, inbetter aligning their programs with country strategies.

5. We reaffirmed our strong support for the current workprogram to harmonize operational policies and procedures of

multilateral agencies so as to enhance aid effec-tiveness and efficiency. We committed to further action in

steamilining such procedures and requirements over theperiod leading to high-level forum scheduled for early

2003.6. Evidence demonstrates that effective assistance in sup-port of good policies and institutions can bring importantdevelopment benifits. More attention should be given to thebuilding of institutions and capacities as well as the timingand sequencing of the reform process. We underlined the

importance of an enhanced focus on results that can be usedby countries in designing and implementing their strategies,and by donors and development agencies in scaling up andallocating their support. We asked the Worlds Bank to reportto us at our next meeting on its efforts in respect. Wewould also welcome a report on efforts under way to engagemore effectively with weak-performing low-incomecountries.

7. Economic growth requires a strong and vibrant privatesector and an enabling climate that encourages investment,enterprenuership, and job creation. however, it is not

enough to strengthen the private sector in developing coun-tries without further progress in integrating them into the

global trading system. We thus strongly endorsed the call atMonterrey for coherence between development assistance and

trade policies. We urged an acceleration of efforts to lowertrade barriers (including trade-distorting subsidies) and wecalled upon the World Bank and others to provide moresupport in helping developing countries address policy, institutional, social, and infrastracture impedimenta limiting theirability to share in the benifits of trade.

8. Education is one of the most powerful instruments for allreducing poverty. We strongly endorsed the action plan pre-sented by the Bank as a basis for reaching internationalconsensus to help make primary education a reality for all

children by 2015. We appreciated in particular that the actionplan is consistent with the new partnership for development

based on mutual responsibility and accountability. We callon the Bank to continue to work in partnership withU N E S C O and other relevant agencies. We encourage allcountries to place education at the heart of their povertyreduction strategies, reform to their education policies to

achieve Universal Primary Completion, and monitor progresstowards the 2015 education goals in line with an enhancedfocus on results. We committed ourselves to work together ina much more coherent way to help bring this about and to

144 A N N U A L R E P O R T 2 0 0 2

1From the UN Millennium Declaration, endorsed by Heads ofState and Government in the UN General Assembly on September 82000.

APPENDIX VI



provide the neccessary additional domestic and externalresources. The Bank and all other stakeholders shouldstrengthen their efforts to achieve the M D G on gender equal-ity in primary and secondary education by 2005. We willreview progress at our next meeting.

9. We reviewed and welcomed the steady progress thathas been made on the H I P C Initiative. We remain commit-ted to its vigorous implementation and full financing. Ourobjective remains an early and enduring exit from unsustain-able debt for H I P C countries. We noted that within existingguidelines additional relief can be provided at the completionpoint, on a case-by-case basis. Success will require a sustained

commitment by H I P C countries to improvements in policiesand debt management and by the donor community to con-tinue to provide adequate and appropriate concessional

financing. We will discuss the issue of debt sustainability and,consequently, financing and policy implications, at the nextmeeting.

10. Finally, we reviewed a progress report on anti-moneylaundering and combating terrorist financing. Recognizingthe serious risks posed by these activities, we welcomed theaction plans agreed by the World Bank and the IMF and theenhanced collaboration with other institutions. We encour-aged the World Bank and the IMF to continue to integratethese issues into their diagnostic work in line with theirrespective mandates, and urged that capacity-building assis-tance be increased so that countries could better address theseissues.

11. The Committee's next meeting is scheduled forSeptember in Washington.

A N N U A L R E P O R T 2 0 0 2 145


Dkector.A .•'-•:>>;[•,1 .j>j"' C'lVacantMeg LundsagerKen Yagi

Hayayuli ToyamaKarlheinz BischofbergerRue diger von Kleist

dffjfjfjfjff fjklskfsffjkasfjfjfjsfjsfjjfjkf fjskfjsfjjfjffjTom ScholarMartin A. BrookeElectedWillv Kiekens(Belgium)dfksfsffks fkfsfkf(Austria)

fksdfksf djhfshfshfh sdjfsjfhshfhfhajjgsjfjfjsfjfjskjfsjfsjfjTuriy G. Takusha(Ukraine)

Fernando Varela(Spain)Herndn Oyarzabal(Republica Bolivariana de Venezuela)

Pier Carlo Padoan(Italy)Harilaos Vittas(Greece)

Casting' •: :es o f

United States

Japan

germany

France

united lkingdom

AustriaBelarusBelgiumCzdfsffkfskfkffs >licdfklsfjsHungaryKazakhstanLifadf af (* LFSFrgSlov- fgllgdlg eggld;g >licSlovenia'I'urk^y

AmericaBosnia and HerzegovinaBulgariaCroatiaCyprusGeorgiaIsraelMacedonia, forFFDFadaasdaddadd iepublic ofMoldovaNetherlandsRomaniaUkraine

Costa RicaEl Salvador

GuarantadfHondurasMexico

NicaraguaSoainVenezuela, Republica Boliajdfshfhfdfsfana de

AlbaniaGreeceItalyMaltaPortugaloan Al.arino

Votes byCountry

371,743

133,378

130,332

107,635

107,635

18,9734,114

46,3028,443

10,6343,9073,0413,8252,5679,890

1,1701,9416,6523,9011,6461,7539,532

9391,482

51,87410,55213,970

1,8911,9632,3521,545

26,1081,550

30,73926,841

7378,480

70,8051,2708,924

420

TotalVo te 1

371,743

133,378

130,332

107,635

107,635

111,696

105,412

92,989

90,636

PeirceiM ofIMF Total2

17.16

6.16

6.02

4.97

4.97

5.16

4.87

4.29

4.18

146 A N N U A L R E P O R T 2 0 0 2

m

Executive Directors and Votina Poweron April 30, 2002

A P P E N D I X


E X E C U T I V E D I R E C T O R S A N D V O T I N G P O W E R

DirectorAlternate

Elected (continued)Ian E. Bennett(Canada)Nioclas A. O'Murchu(Ireland)

Olafur Isleifsson(Iceland)Benny Andersen(Denmark)

Michael J. Callaghan(Australia)Diwa Guinigundo(Philippines)

Sulaiman M . Al-Turki(Saudi Arabia)Ahmed Saleh Alosaimi(Saudi Arabia)

Cyrus D.R. Rustomjee(South Africa)Ismaila Usman(Nigeria)

Casting votes of

Antigua and BarbudaBahamas, TheBarbadosBelizeCanadaDominica

GrenadaIreland

JamaicaSt. Kitts and NevisSt. LuciaSt. Vincent and the Grenadines

DenmarkEstoniaFinlandIcelandLatviaLithuaniaNorwaySweden

AustraliaKiribatiKoreaMarshall IslandsMicronesia, Federated States ofMongoliaNew ZealandPalauPapua New GuineaPhilippinesSamoaSeychellesSolomon I landsVanuatu

Saudi Arabia

AngolaBotswanaBurundiEritreaEthiopiaGambia, TheKenyaLesothoLiberiaMalawiMozambiqueNamibiaNigeriaSierra LeoneSouth AfricaSudan

SwazilandTanzaniaUgandaZambiaZimbabwe

Votes byCountry

3851,553

925438

63,942332367

8,6342,985

339403333

16,678902

12,8881,4261,5181,692

16,96724,205

32,614306

16,586285301761

9,196281

1,5669,049

366338354420

70,105

3,113880

1,020409

1,587561

2,964599963944

1,3861,615

17,7821,287

18,9351,947

7572,2392,0555,1413,784

TotalVotes1

80,636

76,276

72,423

70,105

69,968

Percent ofIMF Total2

3.72

3.52

3.34

3.24

3.23

A N N U A L R E P O R T 2 0 0 2 147


A P P E N D I X V I I

DirectorAlternate

Elected (continued)Dono Iskandar Djojosubroto

(Indonesia)Kwok Mun Low(Singapore)

A. Shakour Shaalan(Egypt)Mohamad B. Chatah(Lebanon)

WEI Benhua(China)WANG Xiaoyi(China)

Aleksei V. Mozhin(Russia)Andrei Lushin(Russia)

Roberto F. Cippa(Switzerland)

(Poland)

Murilo Portugal(Brazil)Roberto Junguito(Colombia)

Vijay L. Kelkar(India)

R.A. Jayatissa(Sri Lanka)

Abbas Mirakhor(Islamic Republic of Iran)Mohammed Dairi(Morocco)

Casting Votes of

Brunei DarussalamCambodiaFijiIndonesiaLao People's Democratic RepublicMalaysiaMyanmarNepalSingaporeThailandTongaVietnam

BahrainEgyptIraqJordanKuwaitLebanonLibyaMaldivesOmanQatarSyrian Arab Republic

United Arab EmiratesYemen

China

Russia

AzerbaijanKrygyz Republic

PolandSwitzerland

TajikistanTurkmenistan

UzbekistanBrazilColombiaDominican RepublicEcuadorGuyanaHaitiPanama

SurinameTrinidad and Tobago

BangladeshBhutanIndiaSri Lanka

AlgeriaGhanaIran, Islamic Republic ofMoroccoPakistanTunisia

Votes byCountry

1,7501,125

95321,043

77915,1162,834

9638,875

11,069319

3,541

1,6009,6875,2901,955

14,0612,280

11,487332

2,1902,8883,1866,3672,685

63,942

59,704

1,8591,138

13,94034,835

1,1201,0023,006

30,6117,9902,4393,2731,159

8572,3161,1713,606

5,583313

41,8324,384

12,7973,940

15,2226,132

10,5873,115

TotalVotes1

68,367

64,008

63,942

59,704

56,900

53,422

52,112

51,793


3.16

2.95

2.95

2.76

2.63

2.47

2.41

2.39

148 A N N U A L R E P O R T 20 0 2


T I V E D I R E C T O R S A N D V O T I N G P O W E R

A. Guiilermo Zoccati(Argentina)'.gkgdgkdkgddkg- S"ort(Chile)

Alexar fglgldgdkgldkglgklgkdgd

Cas'di'iig ¥©ts§ ©f

Argentinalggkdkgivia

Chilegjdgjdjgdjgiguay

PeruUruguay

BeninBurkina Faso

flk;fkfksafoonCape Verde

fkkflsf'sf'skf dlfklsfkslfk" .spublicChadfskjfkfjfjsfjkfjkff

kkfslfskfskflfgkgklgfDjiboutiEquatorial Guinea

ggklgk3onGuineaGuinea-BissauMadagascarMaliMauritaniaMauritiusNiger

fgd;ggk?jidaSao Tome and PrincipeSenegalTogo

Votes byCountry

TotalVotes1


21,4211,9658,8111,2496,6343,315

869852

2,107346807810339

1,0963,502

409576

1,7931,321

3921,4721,183

8941,266

9081,051

3241,868

984

43,395 2.00

25,1692,159,6763'4

1.1699.715

g to thedjahfhfhsfhhfhfhf :ment with use of the IMF resources in that Department.;ral Department and the Special Drawing Rights Department.lie State cfkflkfkfkfkf scan, Somalia, and the Federal Republic of Yugoslavia, which did not

:otal votes of these members is 7,073—0.33 percent of those in the General

lublic of the Congo, which was suspended effective June 2, 1994, pursuant tolent,itages shown for individual Directors because of rounding.

A N N U A L R E P O R T 2 0 0 2 149

c v c r 11

gkgdkfgdlgDamian Ondo Mane(Equatorial Guinea)

Co;r':£o, l-.ep^b?k of

DirectorAlternate

EJbefed <jgjgakgakgjag

Directors. The totnt,

dkffjfjfjfj

Noting power vari;sflflflfslflsfsflslf;slffl s pertaini]df;sf;errwrioiroiwririoiriklsdfklaskfl;skfsfkkljfksjfjkfjfjjffj3This total does not include the votes of the Isla

roeklf'kasfklaslfkskfkflskf;ksfks'fks'fkslffdfsfksjflskjfksjflksfklsjlfjsl;fjl;ssfjslkfsfjkjfsffksfkslfs;fkslfskflfskf;sfkslfsdlfsfkslfskfskkksfkslfksfkskfslkfslfkldkfl;sfkskfskflsfsfkffdlf;sflskfsjffksjkfjsflslfslfsofskflksflsjfsjkfjs


APPENDIX

Changes in Membership of the Executive Board

Changes in membership of the Executive Board betweenMay 1, 2001 and April 30, 2002 were as follows:

Bernd Esdar (Germany) relinquished his duties as Execu-tive Director for Germany, effective May 20, 2001.

Wolf-Dieter Donecker (Germany), formerly AlternateExecutive Director to Bernd Esdar (Germany), was appointedExecutive Director by Germany, effective May 21, 2001.

Ruediger von Kleist (Germany) was appointed AlternateExecutive Director to Wolf-Dieter Donecker (Germany),effective May 21, 2001.

Riccardo Faini (Italy) relinquished his duties as ExecutiveDirector for Albania, Greece, Italy, Malta, Portugal, and SanMarino, effective June 13, 2001.

Pier Carlo Padoan (Italy) was elected Executive Directorby Albania, Greece, Italy, Malta, Portugal, and San Marino,effective June 14, 2001.

Yukio Yoshimura (Japan) relinquished his duties as Execu-tive Director for Japan, effective July 4, 2001.

Ken Yagi (Japan) was appointed Executive Director byJapan, effective July 5, 2001.

Jean-Claude Milleron (France) relinquished his duties asExecutive Director for France, effective July 31, 2001.

Randal Quarks (United States) was appointed ExecutiveDirector by the United States, effective August 7, 2001

Wolf-Dieter Donecker (Germany) relinquished his duties asExecutive Director for Germany, effective August 14, 2001.

Karlheinz Bischofberger (Germany) was appointed Execu-tive Director by Germany, effective August 15, 2001.

Pierre Duquesne (France) was appointed Executive Direc-tor by France, effective August 20, 2001.

Abdelrazaq Faris Al-Faris (United Arab Emirates) relin-quished his duties as Alternate Executive Director toA. Shakour Shaalan (Egypt), effective August 31, 2001.

Mohamad B. Chatah (Lebanon) was appointed AlternateExecutive Director to A. Shakour Shaalan (Egypt), effectiveSeptember 14, 2001.

Thomas A. Bernes (Canada) relinquished his duties asExecutive Director for Antigua and Barbuda, The Bahamas,Barbados, Belize, Canada, Dominica, Grenada, Ireland,Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent andthe Grenadines, effective October 7, 2001.

Ian E. Bennett (Canada) was elected Executive Directorby Antigua and Barbuda, The Bahamas, Barbados, Belize,Canada, Dominica, Grenada, Ireland, Jamaica, St. Kitts andNevis, St. Lucia, and St. Vincent and the Grenadines, effectiveOctober 8, 2001.

Peter Charleton (Ireland) relinquished his duties as Alter-nate Executive Director to Ian E. Bennett (Canada), effectiveNovember 18, 2001.

Nioclas O'Murchu (Ireland) was appointed AlternateExecutive Director to Ian E. Bennett (Canada), effectiveNovember 19, 2001.

Stephen Pickford (United Kingdom) relinquished hisduties as Executive Director for the United Kingdom, effec-tive December 16, 2001.

Thomas W. Scholar (United Kingdom) was appointedExecutive Director by the United Kingdom, effective Dec-ember 17, 2001.

Ake Tornqvist (Sweden) relinquished his duties as Alter-nate Executive Director to Olli-Pekka Lehmussaari (Finland),effective December 19, 2001.

Benny Andersen (Denmark) was appointed AlternateExecutive Director to Olli-Pekka Lehmussaari (Finland),effective December 20, 2001.

Olli-Pekka Lehmussaari (Finland) relinquished his dutiesas Executive Director for Denmark, Estonia, Finland,Iceland, Latvia, Lithuania, Norway, and Sweden, effectiveDecember 31, 2001.

Olafur Isleifsson (Iceland) was elected Executive Directorby Denmark, Estonia, Finland, Iceland, Latvia, Lithuania,Norway, and Sweden, effective January 1, 2002.

Stephen P. Collins (United Kingdom) relinquished hisduties as Alternate Executive Director to Thomas W. Scholar(United Kingdom), effective January 15, 2002.

Martin A. Brooke (United Kingdom) was appointed Alter-nate Executive Director to Thomas W. Scholar (UnitedKingdom), effective January 16, 2002.

Gilles Bauche (France) relinquished his duties as AlternateExecutive Director to Pierre Duquesne (France), effectiveJanuary 31, 2002.

Sebastien Boitreaud (France) was appointed AlternateExecutive Director to Pierre Duquesne (France), effectiveFebruary 1, 2002.

150 A N N U A L R E P O R T 2 0 0 2

VIII


C H A N G E S I N M E M B E R S H I P O F T H E E X E C U T I V E B O A R D

A N N U A L R E P O R T 2 0 0 2 151

Fernando Varela (Spain), formerly Alternate ExecutiveDirector to Hernan Oyarzabal (Republica Bolivariara deVenezuela), was elected Executive Director by Costa Rica, E lSalvador, Guatemala, Honduras, Mexico, Nicaragua, Spain,and Republica Bolivariara de Venezuela, effective February 9,2002.

Hernan Oyarzabal (Republica Bolivariara de Venezuela),formerly Executive Director, was appointed AlternateExecutive Director to Fernando Varela (Spain), effectiveFebruary 9, 2002.

JIN Qi (China) relinquished her duties as Alternate Excu-tive Director to WEI Benhua (China), effective March 3,2002.

W A N G Xiaoyi (China) was appointed Alternate Execu-tive Director to WEI Benhua (China), effective March 4,2002.

Randal Quarles (United States) relinquished his duties asExecutive Director for the United States, effective April 2,2002.


A N N U A L R E P O R T 2 0 0 2 153

A P P E N D I X IX

Financial StatementsApril 30, 2002


A P P E N D I X I X

154 A N N U A L R E P O R T 2 0 0 2

PRICEWATERCOOPERS PCw

May 24, 2002

PricewaterhouseCoopers L L PSuite 800W1301 K Street NWWashington DC 20005Telephone (202) 414 1000Facsimile (202) 414 1301

Report of the Independent Accountants

To the Board of Governorsof the International Monetary Fund:In our opinion, the accompanying balance sheets and the related statements of income, changes in resources and cash flows givea true and fair view of the financial condition of the General Department and the SDR Department of the International Mone-tary Fund (the "IMF") as at April 30, 2002 and 2001, and their respective results of operations and cash flows for the yearsthen ended in conformity with International Accounting Standards. These financial statements are the responsibility of theIMF's management; our responsibility is to express an opinion on these financial statements based on our audits. We conductedour audits of these statements in accordance with International Standards on Auditing, which require that we plan and performthe audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financial statement presen-tation. We believe that our audits provide a reasonable basis for our opinion.Our audits were conducted for the purpose of forming and opinion on the basic financial statements taken as a whole. The sup-plementary information on pages 166 to 171 and 176 to 181 is presented for purposes of additional analysis and is not arequired part of the basic financial statements. The supplementary information has been subjected to the auditing proceduresapplied in the audits of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation thefinancial statements taken as a whole.


AN

NU

AL

RE

PO

RT

2

00

2 155

2002

Assets of the General Resources AccountCredit outstanding 52,080,697Usable currencies 102,460,003Other currencies 54,625,246

Total currencies (Notes 3 and 4) 209,165,946

SDR holdings 1,484,927

Gold holdings (Note 5) 5,851,771

Receivables (Note 6) 500,670

Other assets (Notes 7 and 14) 752,987

Assets of the Special Disbursement AccountInvestments and cash equivalents (Note 8) 2,537,301Structural Adjustment Facility loans (Note 3) 341,692

2,878,993Total Assets 220,635,294

The accompanying notes are an integral part of these financial statements.

General DepartmentBalance Sheets

at April 30, 2002 and 2001(In thousands o/SDRs)

2001 2002 2001

Liabilities and Resources42,219,061 Liabilities:

109,654,428 Remuneration payable 272,187 394,28156,030,973 Other liabilities 120,750 147,883

207,904,462 Special Contingent Account (Note 10) 1,307,019 1,213,019Total Liabilities 1,699,956 1,755,183

2,436,744Members' Resources:

5,851,771 Quotas, represented by:Reserve tranche positions (Notes 2 and 4) 55,327,139 46,732,986

561,562 Subscription payments: Usable 102,460,003 109,654,428Other 54,628,758 56,027,486

696,043 Total quotas 212,415,900 212,414,900

Reserves of the General Resources Account 3,640,445 3,280,4992,405,928

432,526 Accumulated resources of the Special Disbursement Account . . . 2,878,993 2,838,4542,838,454

220,289,036 Total Liabilities and Resources 220,635,294 220,289,036

/ s / Eduard BrauTreasurer

/ s / Horst KohlerManaging Director

FIN

AN

CIA

L S

TA

TE

ME

NT

S

as


A P P E N D I X IX

2002 2001


General DepartmentIncome statements

for the Years Ended April 30, 2002 and 2001(In thousands of SDRs)

Operational IncomeInterest and charges (Note 6)Interest on SDR holdingsOther charges and income (Note 6)

Operational ExpensesRe n (Note 9)Allocation to the Special Contingent Account

Administrative Expenses (Note 13)Net Income of the General Resources Account

Income of the Special Disbursement AccountInvestment incomeInterest on Structural Adjustment Facility loansNet Income of the Special Disbursement Account

2,032,92141,284

157,4962,231,701

1,246,96194,000

1,340,961

530,794359,946

131,3721,131

132,503

2,207,100112,51468,699

2,388,313

1,734,29494,000

1,828,294

384,554175,465

150,0271,389

151,416

156 A N N U A L R E P O R T 2 0 0 2

Income of the General Resources Account


F I N A N C I A L S T A T E M E N T S

General DepartmentStatements of Changes in Resources


Quotas

210,251,4002,163,500

—

—

212,414,9001,000

—

—

212,415,900

General ResourcesAccount

SpecialReserve

2,178,382—

166,600

—

2,344,982—

46,242

—

2,391,224

GeneralReserve

926,652—

8,865

—

935,517—

313,704

—

1,249,221

TotalReserves

3,105,034—

175,465

—

3,280,499—

359,946

—

3,640,445

SpecialDisbursement

AccountAccumulated

Resources

2,767,727—

151,416131

104(25,924)(55,000)

2,838,454—

132,503191

103(30,658)(61,600)

2,878,993

Balance at April 30, 2000Quota subscriptionsNet income of the General Resources Account

transferred to reservesNet income of the Special Disbursement AccountTransfers from the Trust FundTransfers from the Supplementary Financing

Facility Subsidy AccountTransfers to the PRGF TrustTransfers to the PRGF-HIPC TrustBalance at April 30, 2001Quota subscriptionsNet income of General Resources Account

transferred to reservesNet income of the Special Disbursement AccountTransfers from the Trust FundTransfers from the Supplementary Financing

Facility Subsidy AccountTransfers to the PRGF TrustTransfers to the PRGF-HIPC TrustBalance at April 30, 2002



A P P E N D I X IX

General DepartmentStatements of Cash Flows


2002 2001

Usable currencies and SDRs from operating activitiesNet income of the General Resources AccountNet income of the Special Disbursement AccountAdjustments to reconcile net income to usable resources generated by operations

Changes in receivables and other assetsChanges in remuneration payable and other liabilitiesAllocation to the Special Contingent AccountUnrealized losses (gains) on investmentsNet usable currencies and SDRs provided by operating activities

Usable currencies and SDRs from investment activitiesNet acquisition of investments by the Special Disbursement Account

Net usable currencies and SDRs used by investment activities

Usable currencies and SDRs from credit to membersPurchases in currencies and SDRs, including reserve tranche purchasesRepurchases in currencies and SDRsRepayments of Structural Adjustment Facility loans

Net usable currencies and SDRs from credit to members

Usable currencies and SDRs from financing activitiesSubscription payments in SDRs and usable currenciesChanges in composition of usable currenciesTransfers from SDA to the PRGF Trust, P R G F - H I P C Trust, and other accounts

Net usable currencies and SDRs provided by financing activitiesNet (decrease) increase in usable currencies and SDRsUsable currencies and SDRs, beginning of periodUsable currencies and SDRs, end of period

359,946132,503

3,948(149,227)94,00024,415

465,585

(155,788)(155,788)

(29,194,497)19,207,036

90,834(9,896,627)

2501,532,302(91,964)

1,440,588

(8,146,242)112,091,172103,944,930

175,465151,416

(153,434)(6,529)94,000(28,587)232,331

(121,252)(121,252)

(9,599,529)11,243,299

79,1121,722,882

1,746,500367,228(80,689)

2,033,0393,867,000

108,224,172112,091,172


158 A N N U A L R E P O R T 2 0 0 2



General DepartmentNotes to the Financial Statementsas at April 30, 2002 and 2001

1. Purpose and OrganizationThe IMF is an international organization of 183 member coun-tries. It was established, among other purposes, to promoteinternational monetary cooperation and exchange stability andto maintain orderly exchange arrangements among members;to foster economic growth and high levels of employment; andto provide temporary financial assistance to countries underadequate safeguards to help ease balance of payments adjust-ment. The IMF conducts its operations and transactionsthrough the General Department and the Special DrawingRights Department (the SDR Department). The GeneralDepartment consists of the General Resources Account (GRA),the Special Disbursement Account (SDA), and the InvestmentAccount. The latter has not been activated. The IMF alsoadministers trusts and accounts established to perform financialand technical services and financial operations consistent withthe purposes of the IMF. The resources of these trusts andaccounts are contributed by members or the IMF through theSDA. The financial statements of the SDR Department andthese trusts and accounts are presented separately.

General Resources AccountThe G R A holds the general resources of the IMF. Its resourcesreflect the receipt of quota subscriptions, use and repayment ofIMF credit, collection of charges on the use of credit, paymentof remuneration on creditor positions, borrowings, and pay-ment of interest and repayment of borrowings.

Special Disbursement AccountThe assets and resources of the SDA are held separately fromother accounts of the General Department. Resources of theSDA include transfers received from the Trust Fund, an accountadministered by the IMF, and part of the proceeds from thesales of the IMF's gold. There were no gold sales in financialyear 2002 or 2001. Income from the investment of gold profitsin the SDA is to be transferred, as needed, to the PovertyReduction and Growth Facility-Heavily Indebted Poor Coun-tries Trust (PRGF-HIPC Trust), in accordance with decisions ofthe IMF. The SDA also holds outstanding claims on loansextended under the Structural Adjustment Facility (SAF), whichwas established in March 1986 to provide balance of paymentsassistance on concessional terms to qualifying low-income devel-oping country members.

Assets that exceed the financing needs of the SDA, exclud-ing investments arising from the sales of gold undertakenpursuant to the 1999 decision on gold sales by the IMF, aretransferred to the Reserve Account of the Poverty Reductionand Growth Facility Trust (PRGF Trust), which is adminis-tered separately by the IMF as trustee.

2. Summary of Significant Accounting PoliciesBasis of PresentationThe financial statements of the I M F are prepared in accor-dance with International Accounting Standards (IAS).

Specific accounting principles and disclosure practices areexplained further below. The preparation of financial state-ments in conformity with IAS requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenue and expenses during the report-ing period. Actual results could differ from those estimates.

In financial year 2001, the IMF elected early adoption ofIAS 39, Financial Instruments: Recognition and Measure-ment. The adoption of IAS 39 had no material effect on theIMF's financial statements.

Revenue and Expense RecognitionThe financial statements are prepared on the accrual basis;accordingly, income is recognized as it is earned, andexpenses are recorded as they are incurred.

Unit of AccountThe financial statements are expressed in terms of SDRs. Thevalue of the SDR is determined by the IMF each day by sum-ming the values in U.S. dollars, based on market exchangerates, of the currencies in the SDR valuation basket. The IMFreviews the SDR valuation basket every five years. The latestreview was completed in October 2000, and the new compo-sition of the SDR valuation basket became effective onJanuary 1, 2001. The value of the SDR in terms of U.S. dol-lars on the last business day prior to the change (December29, 2000) was identical under both valuation baskets. Thecurrencies in the basket as of April 30, 2002 and 2001 andtheir amounts were as follows:

Currency Amount


0.42621.00.09840.577

As of April 30, 2002, one SDR was equal to 1.26771 U.S.dollars (one SDR was equal to 1.26579 U.S. dollars as ofApril 30, 2001).

Credit OutstandingThe IMF provides balance of payments assistance in accor-dance with established policies by selling to members, inexchange for their own currencies, SDRs or currencies ofother members. When members make purchases, they incurobligations to repurchase the IMF's holdings of their curren-cies arising from the purchases within specified periods bypayments in SDRs or other currencies, as determined by theIMF. Fund credit is subject to specific repayment schedulesover periods which vary depending on the type of facilityused. Repayment schedules comprise two elements: (i) repur-chase expectations, aimed at securing early repayment from

A N N U A L R E P O R T 2 0 0 2 159


A P P E N D I X IX

members in a position to do so, in keeping with a long-stand-ing principle of the IMF that its resources should be usedonly as long as there is a balance of payments need, and (ii)repurchase obligations. Repayments on the expectation sched-ules can be extended by a period of up to one year forStand-By and Supplemental Reserve Facility (SRF) purchasesor three years for Extended Fund Facility (EFF) purchases,upon a member's request if its external position is not suffi-ciently strong. The IMF approved two such requests fromArgentina to extend by one year SRF repayments due on Jan-uary 17, 2002 for an amount of SDR 741 million and,subsequent to year-end, on May 22, 2002 an amount of SDR106 million. A member is considered overdue after failure tomake payment at the date of a repurchase expectation if awaiver is not granted, or after failure to make payment on arepurchase obligation. Failure to obtain a waiver for paymentaccording to the repurchase expectations schedule date with-out the granting of a waiver by the IMF would result, interalia, in a suspension of the right to make further purchases,including prospective purchases under an existing arrange-ment. The IMF's policies on the use of its general resourcesare intended to ensure that their use is temporary and will bereversed within agreed-upon repurchase periods.

A member is entitled to repurchase, at any time, theIMF's holdings of its currency on which charges are leviedand is expected to make repurchases as and when its balanceof payments and reserve position improve.

Overdue Obligations and the First Special Contingent AccountIt is the policy of the IMF to exclude from current income,charges due by members that are six months or more overduein meeting payments to the I M F , unless these members arecurrent in the payment of charges.

Debtor and creditor members share equally the financialconsequences of overdue obligations under a mechanismreferred to as burden sharing. The I M F generates compensat-ing income equal to unpaid and deferred charges, excludingspecial charges, by adjusting the rates of charge and remuner-ation. Members that have borne the financial consequences ofoverdue charges will receive refunds only to the extent thatoverdue charges that had given rise to burden sharing adjust-ments are settled, and these amounts are therefore notpresented as liabilities. In view of the risk resulting from over-due credit, the I M F also accumulates precautionary balancesin the first Special Contingent Account (SCA-1). Allocationsto the SCA-1 are financed by further adjustments to the ratesof charge and remuneration and charged to the IncomeStatement (see Note 10).

CurrenciesCurrencies consist of members' currencies and securities heldby the IMF. Each member has the option to substitute non-negotiable and non-interest-bearing securities for the IMF'sholdings of its currency that exceed 1/4 of 1 percent of themember's quota. These securities are encashable by the IMFon demand.

Each member is required to pay to the IMF its initial quotaand subsequent quota increases partly in its own currency,with the remainder to be paid in usable currencies prescribedby the IMF, or SDRs. One exception was the quota increaseof 1978, which was paid entirely in members' own currencies.

Usable CurrenciesUsable currencies consist of currencies of members consid-ered by the IMF to have strong balance of payment andreserve positions. These currencies are included in the IMF'sfinancial transactions plan to finance purchases and othertransfers of the IMF. Participation in the financial transactionsplan is reviewed on a quarterly basis.

Valuation of CurrenciesCurrencies, including securities, are valued in terms of the SDRon the basis of the currency/SDR exchange rate determinedfor each currency. Securities are not marketable, but can beconverted into cash on demand. Each member is obligated tomaintain, in terms of the SDR, the SDR value of the balancesof its currency held by the IMF in the GRA. This requirementis referred to as the maintenance-of-value obligation. Wheneverthe IMF revalues its holdings of a member's currency, a receiv-able or a payable is established for the amount required tomaintain the SDR value of the IMF's holdings of that currency.The currency balances in the balance sheet include these receiv-ables and payables. Al l currencies were revalued in terms of theSDR on April 30, 2002 and 2001.

SDR HoldingsAlthough SDRs are not allocated to the IMF, the IMF mayacquire, hold, and dispose of SDRs through the GRA. TheIMF receives SDRs from members in the settlement of theirfinancial obligations to the IMF and uses SDRs in transactionsand operations with members. The IMF earns interest on itsSDR holdings at the same rate as all other holders of SDRs.

SDR Interest RateThe SDR interest rate is determined weekly by reference to acombined market interest rate, which is a weighted average ofyields on short-term instruments in the capital markets of theeuro area, Japan, the United Kingdom, and the United States.

Gold HoldingsThe Articles of Agreement limit the use of gold in the IMF'soperations and transactions. Any use provided for in the Arti-cles requires a decision supported by an 85 percent majorityof the total voting power. In accordance with the provisionsof the Articles, whenever the IMF sells gold held on the dateof the Second Amendment of the IMF's Articles of Agree-ment (April 1, 1978), the portion of the proceeds equivalentat the time of sale to one SDR per 0.888671 gram of finegold, which is equal to SDR 35 per fine troy ounce, must beplaced in the GRA. Any excess over this value will be held inthe SDA or transferred to the Investment Account. The IMFmay also sell gold held on the date of the Second Amend-ment to those members that were members on August 31,1975, in proportion to their quotas on that date, in exchangefor their own currencies, at a price equivalent at the time ofsale to one SDR per 0.888671 gram of fine gold.

The IMF values its gold holdings at historical cost usingthe specific identification method (see Note 5).

SAF Loans in the Special Disbursement AccountSAF loans in the SDA are held at historical cost. Allowancesfor loan losses would be established if and when the IMFexpected to incur a loss; no losses have been incurred in the

160 A N N U A L R E P O R T 2 0 0 2



past, and it is the current expectation that no losses will beincurred in the future. Repayments of all SAF loans are trans-ferred to the PRGF Trust Reserve Account when received.

Investments in the Special Disbursement AccountThe resources of the SDA are invested pending their use.Investments are made in debt securities, medium-term instru-ments which are fixed-income securities, and fixed-termdeposits, either directly or by participation in an investmentpool. Debt securities comprise securities issued by nationalfinancial organizations and domestic government bonds in theeuro area, Japan, the United Kingdom and the United States;and securities issued by certain international financial institu-tions. Medium-term instruments offer a spread over domesticgovernment bonds in the euro, Japanese yen, U.S. dollar andpound sterling. Investments are marked to market on the lastbusiness day of the accounting period. Purchases are valuedand reflected on the trade date basis and sales are based on theactual settlement date valuations. Investment income com-prises interest earned on investments, realized and unrealizedgains and losses on investments, and currency valuation differ-ences arising from exchange rate movements against the SDR.

Interest rate risk is managed by limiting the investmentportfolio to a weighted average effective duration that doesnot exceed three years. Currency risk is minimized by invest-ing in securities denominated in SDRs or in the constituentcurrencies of the SDR valuation basket. Risk is further mini-mized by ensuring that the currency composition of theinvestment portfolio matches, as closely as possible, the cur-rency composition of the SDR valuation basket.

Fixed AssetsFixed assets with a cost in excess of a threshold amount arecapitalized at cost. Buildings and equipment are depreciatedusing the straight-line method over the estimated useful livesof the assets, which range from 3 years for equipment to 30years for buildings.

QuotasEach member is assigned a quota that forms the basis of itsfinancial and organizational relationship with the IMF. Amember's quota is related to, but not strictly determined by,economic factors such as national income, the value of exter-nal trade and payments, and the level of official reserves.Quotas determine members' subscriptions to the I M F , theirrelative voting power, access to financing, and their share inSDR allocations. Should a member withdraw from the Fund,-quotas are repayable to the extent they are not needed tosettle other net obligations of the member to the Fund.

Reserve Tranche PositionA member has a reserve tranche in the IMF when the IMF'sholdings of its currency, excluding holdings that reflect themember's use of IMF credit, are less than the member'squota. A member's reserve tranche is considered a part of themember's external reserves and the member may draw on thereserve tranche at any time when it represents that it has abalance of payments need. Reserve tranche purchases are notconsidered a use of I M F credit and are not subject to repur-chase obligations or charges.

ReservesThe IMF determines annually what part of its net income willbe retained and placed to the General Reserve or the SpecialReserve, and what part, if any, will be distributed. The Arti-cles of Agreement permit the IMF to use the Special Reservefor any purpose for which it may use the General Reserve,except distribution. After meeting the expenses of conductingthe PRGF Trust, net operational income generated from thesurcharges on purchases under the SRF, the credit tranches,and the EFF, have been transferred to the General Reserve.Al l other income has been transferred to the Special Reserve.

ChargesThe IMF levies periodic charges on members' use of IMFcredit. The rate of charge is set as a proportion of the SDRinterest rate. For financial year 2002, the basic rate of chargeafter the retroactive reduction in charges was 116.4 percent(113.7 percent during financial year ended April 30, 2001) ofthe SDR interest rate. The basic rate of charge is increased tooffset the effect on the IMF's income of the deferral of unpaidcharges and to finance the additions to the SCA-1. The averageadjusted rate of charge before applicable surcharges for finan-cial year 2002 was 3.44 percent (for financial year 2001 theaverage rate was 5.26 percent). A surcharge progressing from150 to 500 basis points above the rate of charge applies to useof credit under the SRF and the Contingent Credit Lines(CCL) . In addition, credit outstanding in excess of 200 percentof quota, resulting from purchases after November 28, 2000 inthe credit tranches and under the EFF (other than those underthe SRF and C C L ) , is subject to a surcharge of 100-200 basispoints. Special charges are levied on members' currency hold-ings that are not repurchased when due and on overduecharges. Special charges do not apply to members that are sixmonths or more overdue to the IMF. A service charge is leviedby the IMF on all purchases, except reserve tranche purchases.A refundable commitment fee is charged on Stand-By andExtended Arrangements. At the expiration or cancellation of anarrangement, the unrefunded portion of the commitment fee istaken into income.

RemunerationThe IMF pays interest, referred to as remuneration, on amember's reserve tranche position. The rate of remunerationis equal to the SDR interest rate, adjusted downward tofinance a share of the nonpayment of charges and additions tothe SCA-1. The average adjusted rate of remuneration for thefinancial year ended April 30, 2002 was 2.65 percent (4.30percent for the financial year 2001). A portion of the reservetranche is unremunerated and is equal to 25 percent of themember's quota on April 1, 1978—that part of the quotathat was paid in gold prior to the Second Amendment of theFund's Articles. For a member that joined the Fund after thatdate, the unremunerated reserve tranche is the same percent-age of its initial quota as the average unremunerated reservetranche was as a percentage of the quotas of all other mem-bers when the new member joined the Fund. Theunremunerated reserve tranche remains fixed for each mem-ber in nominal terms, but because of subsequent quotaincreases, it is now significantly lower when expressed as apercentage of quota. The average is equal to 3.8 percent of

A N N U A L R E P O R T 2 0 0 2 161


A P P E N D I X IX

quota at April 30, 2002 and 2001, but the actual percentageis different for each member.

Pension and Other Post-Retirement ObligationsThe IMF operates two defined-benefit pension plans andprovides post-retirement benefits to retired staff.

The pension plans are funded by payments from the staffand the IMF, taking into account the recommendations ofindependent actuaries. Assets of the plans are held in sepa-rate trustee-managed funds and are measured at fair value asof the balance sheet date. Pension obligations are measuredusing the Projected Unit Credit Method, which measuresthe present value of the estimated future cash outflows, usinginterest rates of government securities that have maturitiesapproximating the terms of the pension liabilities.

The assets set aside for the provision of post-retirementbenefits are held in an investment account administered by theIMF. This account is funded by contributions from the IMF.The expected costs of the post-retirement medical and life insur-ance benefits are accrued over the period of employment usingthe Projected Unit Credit Method. Valuations of these obliga-tions are carried out by independent actuaries.

ComparativesWhen necessary, comparative figures have been reclassified toconform with changes in the presentation of the current year.

3. Credit OutstandingChanges in the outstanding use of IMF credit under the var-ious facilities of the GRA during the years ended April 30,2002 and 2001 were as follows:

April 30, Repur- April 30, Repur- April 30,2000 Purchases chases 2001 Purchases chases 2002

Scheduled repurchases in the GRA and repayments of SAFloans in the SDA are summarized below:

Regular facilitiesExtended Fund

FacilitySupplemental

Reserve FacilitySystemic Transformation

FacilityEnlarged AccessCompensatory and

ContingencyFinancing Facility

SupplementaryFinancing Facility

Total credit outstanding

20,968

16,361

—

2,718752

3,032

13743,968

4,396

1,013

4,085

——

—

_

9,494

In)(8,658)

(1,417)

—

(785)(322)

(40)

(21)(11,243)

nillions ofSDRs16,706

15,957

4,085

1,933430

2,992

11642,219

17,219

959

10,891

——

—

_

29,069

(5,698)

(1,425)

(9,101)

(622)(109)

(2,246)

(6)(19,207)

28,227

15,491

5,875

1,311321

746

11052,081

As of April 30, 2002 and 2001, SDA loans and interestreceivable computed at 0.5 percent a year, consisted of thefollowing:

Financial YearEnding

April 30

20032004200520062007

2008 and beyondOverdue

Total

GeneralResourcesAccount

SpecialDisbursement

AccountIn millions of SDKs

12,8829,649

13,8018,9062,4623,500

88152,081

62514036——

152341

As of April 30, 2002 and 2001, use of credit in the GRAby the largest users was as follows:

2002 2001

Largest user of creditThree largest users of creditFive largest users of credit

In millions ofSDRs and as a percentof total GRA credit outstanding

14,510 27.9% 8,546 20.2%32,337 62.1% 22,308 52.8%41,143 79.0% 28,728 68.0%

Overdue ObligationsAt April 30, 2002, seven members (as of April 30, 2001, sixmembers) were six months or more overdue in settling theirfinancial obligations to the IMF. Five (four members as ofApril 30, 2001) of these members were overdue to the Gen-eral Department.

GRA repurchases, GRA charges, SAF loan repayments,and SAF interest that are six or more months overdue in theGeneral Department were as follows:

Repurchasesand SAF Loans

Charges andSAF Interest

Total overdueOverdue for six months or moreOverdue for three years or more

2002 2001 2002 2001

In millions ofSDRs1,033 1,011 1,055 1,0171,010 1,011 1,039 992

977 985 930 886

The type and duration of the overdue amounts in theGeneral Department as of April 30, 2002, were as follows:

Repurchases Charges Longestand SAF and SAF Total Overdue

Loans Interest Obligation Obligation

Structural AdjustmentFacility loans

Interest accruedLess: interest deferred

2002

In millions

3418

(8)341

2001

ofSDRs

4328

(7)433

Congo, DemocraticRepublic of

LiberiaSomaliaSudanZimbabwe

Total

300201106379

471,033

In millions ofSDRs

83240

91636

51,055

383441197

1,01552

2,088

May 1991May 1985July 1987July 1985February 2001

162 A N N U A L R E P O R T 2 0 0 2



4. CurrenciesChanges in the IMF's holdings of members' currencies forthe years ended April 30, 2002 and 2001 were as follows:

Members' quotas

April 30,2000

210,251Members' outstanding

use of I M F creditin the G R A

Members' reservetranche positionsin the G R A

Administrativecurrency balancesCurrencies

43,913

(48,872)

(3)205,289

NetChange

April 30,2001

NetChange

In millions of SDRs2,164

(1,694)

2,139

62,615

212,415

42,219

(46,733)

3207,904

1

9,862

(8,594)

(7)1,262

April 30,2002

212,416

52,081

(55,327)

(4)209,166

Receivables and payables arising from valuation adjustmentsat April 30, 2002, when all holdings of currencies of memberswere last revalued, amounted to SDR 17,953 million and SDR3,648 million, respectively (SDR 14,736 million and SDR3,886 million, respectively, at April 30, 2001). Settlements ofthese receivables or payables are required to be made promptlyafter the end of each financial year.

Other currency holdings, other than those resulting from theuse of credit or usable currencies, amounted to SDR 54,625million (SDR 56,031 million as of April 30, 2001); of thisamount SDR 28,996 million (SDR 33,129 million as of April30, 2001) represents currencies of members that use IMF credit.

5. Gold HoldingsAt April 30, 2002 and April 30, 2001, the IMF held 3,217,341kilograms of gold, equal to 103,439,916 fine ounces of gold, atdesignated depositories. As of April 30, 2002, the value of theIMF's holdings of gold calculated at the market price was SDR25.1 billion (SDR 21.5 billion at April 30, 2001).

6. Interest and ChargesAs of April 30, 2002, the total holdings on which the IMFlevies charges amounted to SDR 52,081 million (SDR 42,219million as of April 30, 2001). Charges and other receivables dueto the IMF as of April 30, 2002 and 2001 were as follows:

2002 2001

Periodic chargesLess: deferred income

Other receivablesReceivables

In1,546

(1,053)493

8501

millions of SDRs1,560

(1,020)54022

562

Periodic charges for the years ended April 30, 2002 and2001 consisted of the following:

Periodic chargesAdd: adjustments for deferred

charges, net of refunds, andfor contributions to the SCA-1

Less: income deferred,net of settlements

Total periodic charges

In millions of2,002

64

(33)2,033

SDRs2,174

60

(27)2,207

Special charges, service charges and the unrefunded com-mitment fees are included in Other Charges and Income whichamounted to SDR 157 million (SDR 69 million for the yearended April 30, 2001).

7. Fixed AssetsOther assets include capital assets, which at April 30, 2002and 2001 amounted to SDR 238 million and SDR 223 mil-lion, respectively, and consisted of:

Included in fixed-term deposits are cash equivalentsamounting to SDR 2,166 million (SDR 39 million as at April30, 2001) comprising short-term deposits with maturities ofless than ninety days.

As at April 30, the maturity profile of the investments issummarized below:

Investment income for the years ended April 30 includedthe following:

9. RemunerationAt April 30, 2002, total creditor positions on which the IMFpaid remuneration amounted to SDR 48,817 million (SDR40,176 million at April 30, 2001). Remuneration for the yearsended April 30, 2002 and 2001 consisted of the following:

A N N U A L R E P O R T 2 0 0 2 163

Fixed-term depositsMedium-term instrumentsDebt securities

Total

2002

In millions2,537

2,537

2001

of SDRs39

1,601766

2,406

8. Investments and Cash EquivalentsAs at April 30, the investments in the SDA consisted of thefollowing:

Land and buildingsEquipment

Total fixed assetsLess: accumulated depreciation

Net fixed assets

2002

In millions31445

359(121)238

2001

of SDRs30746

353(130)223

Less than 1 year1-3 years3-5 yearsOver 5 years

Total

2002

In millions2,537

2,537

2001

of SDRs39

2,247117

32,406

Interest incomeRealized gainsUnrealized (losses)/gains

Total income

2002

In millions9660

(25)131

2001

of SDRs110

1129

1502002 2001


A P P E N D I X IX

10. Deferred Income and the First SpecialContingent AccountThe SCA-1 is financed by quarterly adjustments to the rate ofcharge and the rate of remuneration. Balances in the SCA-1 areto be distributed to the members that shared the cost of itsfinancing when there are no outstanding overdue repurchasesand charges, or at such earlier time as the IMF may decide. AtApril 30, 2002, the balances held in the SCA-1 amounted toSDR 1,307 million (SDR 1,213 million at April 30, 2001).

Cumulative charges, net of settlements, that have beendeferred since May 1, 1986 and have resulted in adjustmentsto charges and remuneration amounted to SDR 865 millionat April 30, 2002 (SDR 832 million at April 30, 2001). Thecumulative refunds for the same period, resulting from thesettlements of deferred charges for which burden sharingadjustments have been made, amounted to SDR 994 million(SDR 993 million at April 30, 2001).

11. BorrowingsUnder the General Arrangements to Borrow (GAB), the IMFmay borrow up to SDR 18.5 billion when supplementaryresources are needed, in particular, to forestall or to cope withan impairment of the international monetary system. TheGAB became effective on October 24, 1962, and has beenextended through December 25, 2003. Interest on borrow-ings under the GAB is calculated at a rate equal to the S D Rinterest rate.

Under the New Arrangements to Borrow (NAB), the IMFmay borrow up to SDR 34 billion of supplementary resources.The N A B is the facility of first and principal recourse, but itdoes not replace the G A B , which will remain in force. Out-standing drawings and commitments under these twoborrowing arrangements are limited to a combined total ofSDR 34 billion. The N A B became effective for a five-yearperiod on November 17, 1998 and was activated on Decem-ber 2, 1998. Interest on borrowings under the N A B is payableto the participants at the SDR interest rate or any such higherrate as may be agreed between the IMF and participants repre-senting 80 percent of the total credit arrangement.

12. Arrangements and Commitments in the GeneralDepartmentAn arrangement is a decision of the IMF that gives a memberthe assurance that the IMF stands ready to provide SDRs orusable currencies during a specified period and up to a specifiedamount, in accordance with the terms of the arrangement.Credit under these arrangements is subject to interest andcharges that are uniform to all members and that reflect thecost to the IMF of financing such credit, plus a margin. Inaddition, certain surcharges may apply. At April 30, 2002, theundrawn balances under the 17 arrangements that were ineffect in the G R A amounted to SDR 26,908 million (SDR22,316 million under 25 arrangements at April 30, 2001).

The IMF has committed to lease commercial office spacethrough 2005. Expenditures totaling SDR 32 million will beincurred over this period.

13. Administrative ExpensesThe administrative expenses for the years ended April 30,2002 and 2001 were as follows:

2002 2001

PersonnelPension and other related

expenses/( income)TravelOtherLess: reimbursements for

the administrationof the SDR Department

Total administrative expenses,net of reimbursements

In millions of SDRs

338

573

117

(2)

531

302

(90)69

106

(2)

385

The majority of these expenses are incurred in U.S. dol-lars; exchange gains and losses incurred in the normal courseof business are reflected in administrative expenses and arenot significant.

The G R A is reimbursed for the cost of administering theSDR Department.

The G R A is to be reimbursed annually for expensesincurred in administering the SDA and the PRGF Trust.Following the establishment of the SRF and C C L and theconsequent increase in net operational income, the ExecutiveBoard decided to forgo reimbursement of the expensesincurred in administering the PRGF Trust for financial years2002 and 2001 and to transfer the amounts that would oth-erwise have been reimbursed to the G R A from the PRGFTrust Reserve Account, through the SDA, to the PRGF-H I P C Trust. These transfers amounted to SDR 61.6 millionfor financial year 2002 (SDR 55 million for financial year2001) and have been included under transfers to the PRGF-H I P C Trust in the statement of changes in resources.

14. Pension and Other Posh Retirement BenefitsThe IMF has a defined-benefit Staff Retirement Plan (SRP)that covers substantially all eligible staff and a SupplementalRetirement Benefits Plan (SRBP) for selected participants ofthe SRP. Participants contribute a fixed percentage of theirpensionable remuneration. The IMF contributes the remain-der of the cost of funding the plans and pays certainadministrative costs of the plans. In addition, the IMF pro-vides other employment and post-retirement benefits,including medical and life insurance benefits. In 1995, theIMF established a separate account, the Retired Staff BenefitsInvestment Account (RSBIA), to hold and invest resourcesset aside to fund the cost of these employment benefits.

On March 23, 2001, the RSBIA was amended to includethe funding and administration of all existing long-term ben-efits, other than pension benefits for regular staff, includingseparation and repatriation benefits, accrued annual leave upto 60 days, payments in lieu of pension for contractualemployees, and associated tax allowances.

The obligations of the SRP, SRBP, and RSBIA are valuedby independent actuaries every year using the Projected Unit

164 A N N U A L R E P O R T 2 0 0 2

RemunerationLess: adjustments for deferred

charges net of refunds, and forcontributions to the SCA-1

2002

In millions1,311

(64)1,247

2001

of SDRs1,794

(60)1,734



Credit Method. The latest actuarial valuations were carriedout as at April 30, 2002. The key assumptions used are asshown below. The present value of the defined-benefit oblig-ation and current service cost was calculated using theProjected Unit Credit Method.

Amounts recognized in the balance sheets are as follows:

Fair value of plan assetsPresent value of the defined-

benefit obligationUnrecognized actuarial

(losses)/gainsUnrecognized prior service costNet balance sheet asset

2002 2001

In millions of SDRs3,099

(2,884)

24213

4 7 0

Movement in the net balance sheets asset:

Net balance sheet asset,beginning of year

Reclassification of related liabilityIncome/(expense) recognized

in income statementContributions paidNet balance sheet asset,

end of year

2002

3,200

(2,538)

(231)—

431

2001

In millions of SDRs

431—

(5)44

470

223(6)

90124

431

The amounts recognized in the income statements are asfollows:

Current service costInterest costExpected return on assetsAmortization of actuarial gainTotal expense/(gain) recognized

in income statementActual (loss)/return on assets

2002 2001

In millions of SDRs

116186

(295)(2)

5(79)

Principal actuarial assumptions used:

Discount rateExpected return on

plan assetsFuture salary increases 6Ultimate health care costs

growth rates

2002

90184

(321)(43)

(90)315

2001

In percent

7.5

9.3.4-10.8

5.5

7.5

9.36.6-11.0

5.5


A P P E N D I X IX

Schedule 1

General DepartmentQuotas, IMF's Holdings of Currencies, Reserve Tranche Positions,

and Members' Use of Resourcesas at April 30, 2002

(In thousands of SDRs)

General Resources Account

Member

Afghanistan, Islamic State ofAlbaniaAlgeriaAngolaAntigua and BarbudaArgentinaArmenia, Republic ofAustraliaAustriaAzerbaijanBahamas, TheBahrain, Kingdom ofBangladeshBarbadosBelarus, Republic ofBelgiumBelizeBeninBhutanBoliviaBosnia and HerzegovinaBotswanaBrazilBrunei DarussalamBulgariaBurkina FasoBurundiCambodiaCameroonCanadaCape VerdeCentral African RepublicChadChileChinaColombiaComorosCongo, Democratic

Republic ofCongo, Republic ofCosta RicaCote d'IvoireCroatia, Republic ofCyprusCzech RepublicDenmark

Quota

120,40048,700

1,254,700286,300

13,5002,117,100

92,0003,236,4001,872,300

160,900130,300135,000533,300

67,500386,400

4,605,20018,80061,900

6,300171,500169,10063,000

3,036,100150,000640,200

60,20077,00087,500

185,7006,369,200

9,60055,70056,000

856,1006,369,200

774,0008,900

291,00084,600

164,100325,200365,100139,600819,300

1,642,800

IMF's holdingsof currencies1

Total

115,48848,659

2,328,433286,445

13,49912,966,922

110,2862,098,1191,233,300

294,811124,06367,463

618,97862,758

438,9753,080,484

14,56259,721

5,280162,638254,435

40,8336,285,891

114,7271,434,866

52,95776,64189,063

185,1524,154,014

9,59855,58455,719

550,4954,420,415

488,2028,362

448,10999,178

144,113324,884448,876

94,238698,858

1,048,357

Percentof quota

95.999.9

185.6100.1100.0612.5119.964.865.9

183.295.250.0

116.193.0

113.666.977.596.583.894.8

150.564.8

207.076.5

224.188.099.5

101.899.765.2

100.099.899.564.369.463.194.0

154.0117.287.899.9

122.967.585.363.8

Reservetrancheposition

4,9283,355

85,082—1

11—

1,138,329638,949

106,239

67,568186

4,75220

1,524,7244,2392,1881,0208,875

—22,177

—35,28532,778

7,246360

—553

2,215,1172

116282

305,6051,948,831

285,803540

—536

20,000320159

45,369120,451594,446

GRAAmount

(A)

3,3091,158,813

——

10,849,82118,281

——

133,911

—85,859

—52,575

—————

85,330—

3,249,138—

827,424

—1,563

———————

—

157,10915,100

—

83,933

——

Percent2

0.012.23

——

20.830.04

——

0.26

—0.16

—0.10

————

0.16—

6.24—

1.59

—————————

—

0.300.03

—

0.16———

Use of Resources

SDA3

+ (B)

—————————

——————

1,750———————

6,636—————————

540

142,910——

————

PRGFTrust4

59,441————

114,287——

98,000

—14,375

————

55,547—

161,793—————

89,0051,934

66,985209,880

—1,230

24,48077,230

——

—

—12,506

—421,795

————

Total5

= (D)

62,7501,158,813

——

10,849,821132,568

——

231,911

—100,234

—52,575

——

57,297—

161,79385,330

—3,249,138

—827,424

95,6411,934

68,548209,880

—1,230

24,48077,230

——

540

300,01927,606

—421,795

83,933———

166 A N N U A L R E P O R T 2 0 0 2



Schedule 1 (continued)


Member

DjiboutiDominicaDominican RepublicEcuadorEgyptEl SalvadorEquatorial GuineaEritreaEstonia, Republic ofEthiopiaFijiFinlandFranceGabonGambia, TheGeorgiaGermanyGhanaGreeceGrenadaGuatemalaGuineaGuinea-BissauGuyanaHaitiHondurasHungaryIcelandIndiaIndonesiaIran, Islamic Republic ofIraqIrelandIsraelItalyJamaicaJapanJordanKazakhstan, Republic ofKenyaKiribatiKoreaKuwaitKyrgyz RepublicLao People's Democratic

RepublicLatvia, Republic ofLebanonLesothoLiberiaLibyaLithuania, Republic ofLuxembourgMacedonia, former Yugoslav

Republic ofMadagascarMalawi

Quota

15,9008,200

218,900302,300943,700171,300

32,60015,90065,200

133,70070,300

1,263,80010,738,500

154,30031,100

150,30013,008,200

369,000823,000

11,700210,200107,100

14,20090,90060,700

129,5001,038,400

117,6004,158,2002,079,3001,497,200

504,000838,400928,200

7,055,500273,500

13,312,800170,500365,700271,400

5,6001,633,6001,381,100

88,800

52,900126,800203,000

34,90071,300

1,123,700144,200279,100

68,900122,20069,400


Total

17,4858,192

253,636511,879943,716171,303

32,60915,90073,914

126,55555,300

831,2967,004,568

213,77029,618

180,3628,563,891

369,004553,132

11,701210,206107,026

17,75090,90273,924

162,437716,447

99,0213,669,4788,910,3941,497,203

504,013546,847705,848

4,392,166302,550

8,831,949499,749365,700258,864

5,6011,404,759

888,03396,863

52,900143,921184,168

31,365272,213728,206252,430180,181

95,197122,17467,132

Percentof quota

11099.9

115.9169.3100.0100.0100.0100.0113.494.778.765.865.2

138.595.2

120.065.8

100.067.2

100.0100.099.9

125.0100.0121.8125.469.084.288.2

428.5100.0100.065.276.062.3

110.666.3

293.1100.095.4

100.086.064.3

109.1

100.0113.590.789.9

381.864.8

175.164.6

138.2100.096.7


1,10093

17,153—

—56

7,16915,004

432,5593,733,980

1791,485

104,444,321

—269,870

——75——56

8,627321,954

18,580488,776145,478

——

291,570222,359

2,663,338

4,481,27852

512,557

—228,845493,067

5

—55

18,8333,539

28395,505

1698,946

—27

2,271

G R AAmount

(A)

2,685—

34,738226,730

————

8,719—

——

59,643—

30,063——————

3,550—

13,27841,563

———

6,976,572—————

29,000—

329,299——

——

8,063

—17,156

——

200,932—

108,244—

26,295—

Percent2

0.01—

0.070.44

—

——

0.02—

——

0.11—

0.06————

—0.01

—0.030.08

———

13.40—————

0.06—

0.63——

——

0.02

—0.03

—0.39

—0.21

—

0.05——

Use of Resources

SDA3

+ (B)

—————

1,032——

16,958

————————————

3,198———————————

————

———

586

—————

——

PRGFTrust4

+ (C)

9,087————

440——

86,576

———

20,610190,725

—275,505

———

97,21514,74070,90015,175

125,250—————————_———

78,647———

129,317

32,520

14,049——

—

29,004101,37456,578

Total5

= (D)

11,772—

34,738226,730

—

1,472—

8,719103,534

——

59,64320,610

220,788—

275,505———

97,21518,29074,09828,453

166,813———

6,976,572—————

29,000—

329,299—

78,647

——

137,380

33,10617,156

14,049223,822

—108,244

—

55,299101,37456,578


A P P E N D I X IX



Member

MalaysiaMaldivesMaliMaltaMarshall IslandsMauritaniaMauritiusMexicoMicronesia, Federated

States ofMoldova, Republic ofMongolia

MoroccoMozambiqueMyanmarNamibiaNepalNetherlandsNew ZealandNicaraguaNigerNigeriaNorwayOmanPakistanPalauPanamaPapua New GuineaParaguayPeruPhilippinesPoland, Republic ofPortugalQatarRomaniaRussian FederationRwandaSt. Kitts and NevisSt. LuciaSt. Vincent and the

GrenadinesSamoaSan Marino, Republic ofSao Tome and PrincipeSaudi ArabiaSenegalSeychellesSierra LeoneSingaporeSlovak RepublicSlovenia, Republic ofSolomon IslandsSomaliaSouth AfricaSpainSri LankaSudan

Suriname

Quota

1,486,6008,200

93,300102,000

3,50064,400

101,6002,585,800

5,100123,20051,100

588,200113,600258,400136,50071,300

5,162,400894,600130,00065,800

1,753,2001,671,700

194,0001,033,700

3,100206,600131,60099,900

638,400879,900

1,369,000867,400263,800

1,030,2005,945,400

80,1008,900

15,300

8,30011,60017,0007,400

6,985,500161,800

8,800103,700862,500357,500231,700

10,40044,200

1,868,5003,048,900

413,400169,700

92,100


Total

878,4506,646

84,46761,745

3,50064,40687,132

2,585,407

5,100216,950

51,038517,760113,600258,402136,46365,557

3,447,344580,366130,010

57,2401,753,1221,073,632

125,7361,969,508

3,100234,752216,835

78,428879,298

2,266,9161,002,164

568,031169,836

1,315,58211,501,505

82,34410,24215,300

7,80010,91812,9007,403

4,667,976160,373

8,799103,685565,377357,505148,544

9,867140,907

1,868,1311,989,443

517,319549,077

85976

Percentof quota

59.181.090.560.5

100.0100.085.8

100.0

100.0176.199.988.0

100.0100.0100.091.966.864.9

100.087.0

100.064.264.8

190.5100.0113.6164.8

78.5137.7257.6

73.265.564.4

127.7193.5102.8115.1100.0

94.094.175.9

100.066.899.1

100.0100.065.6

100.064.194.9

318.8100.065.3

125.1323.6

93.4


608,1561,5548,835

40,2601

14,474409

15

6370,441

7—38

5,7461,715,079

314,237—

8,561143

598,09368,330

1151

11,860313

21,475—

87,182366,836299,370

93,964—

1,137—82

1

500683

4,101—

2,317,5281,432

124

297,162—

83,162543

3731,059,468

47,78511

6,125

Use of ResourcesG R A

Amount(A)

—————

——

—93,750

—————————————

935,922—

40,00085,540

—240,864

1,474,195

——

285,3775,557,186

2,2311,422

————————————

96,701——

151,680379,357

Percent2

————

——

—0.18

—————————————

1.80—

0.080.16

—0.462.83

——

0.5510.67

—

——

—————————

0.19——

0.290.74

S D A 3

+ (B)——

2,032——

682——

——————————————————————

——————

——

————

10,808————

8,840————

PRGFTrust4

+ (C)

—126,043

——

77,871——

—18,48035,791

—154,365

——

4,476——

125,33072,714

———

513,660——————

————

61,880—

———

1,902—

202,532—

109,267————

——

50,400—

Total5

= (D)

—128,075

——

78,553——

—112,23035,791

—154,365

——

4,476——

125,33072,714

———

1,449,582—

40,00085,540

—240,864

1,474,195

——

285,3775,557,186

64,1111,422

——

1,902—

202,532—

120,075————

112,004——

202,080438,585

168 A N N U A L R E P O R T 2 0 0 2



Schedule 1 (concluded)


Member

SwazilandSwedenSwitzerlandSyrian Arab RepublicTajikistan, Republic ofTanzaniaThailandTogoTongaTrinidad and TobagoTunisiaTurkeyTurkmenistan,

Republic ofUgandaUkraineUnited Arab EmiratesUnited KingdomUnited StatesUruguayUzbekistan, Republic ofVanuatuVenezuela, Republica

Bolivariana deVietnamYemen, Republic of

Quota

50,7002,395,5003,458,500

293,60087,000

198,9001,081,900

73,4006,900

335,600286,500964,000

75,200180,500

1,372,000611,700

10,738,50037,149,300

306,500275,600

17,000

2,659,100329,100243,500

Yugoslavia, Federal Republic of(Serbia/Montenegro)

ZambiaZimbabweTotal

467,700489,100353,400

212,415,900


Total

44,1541,538,3672,194,774

293,60393,563

188,9232,131,895

73,0975,197

287,037266,335

15,361,688

75,200180,506

2,829,813403,729

7,167,65624,377,035

643,357333,788

14,506

2,337,201337,153291,785

734,639489,101472,029

209,165,946

Percentof quota

87.164.263.5

100.0107.595.0

197.199.675.385.593.0

1,593.5

100.0100.0206.3

66.066.765.6

209.9121.1

85.3

87.9102.4119.8

157.1100.0133.6


6,552857,139

1,263,76252

9,97520

3051,710

48,56620,167

112,775

56

3207,972

3,570,85112,766,071

35,6755

2,496

321,9005

13

—18

32855,327,139

G R AUse of Resources

Amount Percent2

(A)

———

6,563—

1,050,000————

14,510,460

——

1,457,813———

372,52558,188

—

—8,053

48,297

266,925—

118,95552,080,697

———

0.01—

2.02————

27.86

——

2.80———

0.720.11

—

—0.020.09

0.51—

0.23100.00%

PRGFSDA3 Trust4

+ (B) + (C)

— —— —— —— 78,280— 291,220— —— 44,208— —— —— —— —

— —— 213,790— —— —— —— —— —— —— —

— —— 270,040— 238,750

— —145,400 636,165

— 89,484341,372 6,172,848

Total5

= (D)

———

84,843291,220

1,050,00044,208

———

14,510,460

—213,790

1,457,813———

372,52558,188

—

—278,093287,047

266,925781,565208,439

58,683,498

1Includes nonnegotiable, non-interest-bearing notes that members are entitled to issue in substitution for currencies, and outstanding currencyvaluation adjustments.

2Represents the percentage used by each member of total use of G R A resources (column A).3The Special Disbursement Account (SDA) of the General Department had financed loans under Structural Adjustment Facility (SAF) and

Poverty Reduction Growth Facility (PRGF) arrangements.4For information purposes only. The PRGF Trust provides financing under PRGF arrangements and is not a part of the General Department.5Includes outstanding Trust Fund loans to Liberia (SDR 23 million), Somalia (SDR 6 million), and Sudan (SDR 59 million).6Less than SDR 500.


A P P E N D I X IX

Schedule 2

General DepartmentFinancial Resources and Liquidity Position

in the General Resources Accountas at April 30, 2002 and 2001


1Sundry assets, net of sundry liabilities, reflect current assets (charges, interest, and other receivables) and other assets (which include cap-ital assets such as land, buildings, and equipment), net of sundry liabilities (remuneration payable and other liabilities).

2Resources regarded as non-usable in the financing of the IMF's ongoing operations and transactions are (1) gold holdings, (2) curren-cies of members that are using IMF credit, (3) currencies of other members with relatively weak external positions, and (4) sundry assets,net of sundry liabilities.

3Usable resources consist of (1) holdings of currencies of members considered by the IMF as having balance of payments and reservepositions sufficiently strong for their currencies to be used in transfers, (2) SDR holdings, and (3) any unused amounts under credit linesthat have been activated.

4Amounts committed under arrangements, which reflect undrawn balances committed under operative Stand-By and Extended Arrange-ments, other than precautionary arrangements, are deducted from the total of usable resources, as are one-half of the amounts committedunder precautionary arrangements. The Executive Board has decided that the minimum working balances be set at 10 percent of the quotasof members deemed sufficiently strong for their currencies to be used in operations and transactions.

5Net uncommitted usable resources are defined as usable resources less resources committed under arrangements and minimum workingbalances, as described above. The amount represents the resources available to meet requests for use of IMF credit under new creditarrangements and for members' use of their reserve positions in the IMF.

6Liquid liabilities consist of (1) members' reserve tranche positions, and (2) the amount of any outstanding borrowing by the IMF underthe GAB or NAB. There are currently no borrowings under the GAB or NAB. Both reserve tranche positions and outstanding lendingunder the GAB and NAB (together called members' reserve positions in the IMF) are part of members' international reserves. A membermay draw on its reserve position when it represents that it has a need and the IMF must therefore at all times be in a position to meet suchrequests.

7The liquidity ratio is a measure of the IMF's liquidity position, represented by the ratio of its net uncommitted usable resources to itsliquid liabilities.

170 A N N U A L R E P O R T 2 0 0 2

Total ResourcesCurrenciesSDR holdingsGold holdingsSundry assets, net of sundry liabilities1

Total resources

Less: Non-Usable Resources2

Equals: Usable Resources3

Resources Committed and Working BalancesUndrawn balances under arrangements4

Minimum working balances4

Resources committed and working balances

Net Uncommitted Usable Resources5

Liquid LiabilitiesReserve tranche positions6

Liquidity Ratio7

Memorandum ItemResources available under borrowing arrangements

2002

209,165,9461,484,9275,851,771

860,720217,363,364

113,418,434

103,944,930

23,730,00915,466,43039,196,439

64,748,491

55,327,139

117.0%

34,000,000

2001

207,904,4622,436,7445,851,771

715,441216,908,418

104,817,246

112,091,172

18,097,84915,289,11033,386,959

78,704,213

46,732,986

168.4%

34,000,000



Schedule 3

General DepartmentStatus of Arrangements

as at April 30, 2002(In thousands of SDRs)

1Includes SDR 6.09 billion available until January 11, 2002 under the Supplemental Reserve Facility.2Includes SDR 9.95 billion available until September 13, 2002 under the Supplemental Reserve Facility.

Member

General Resources AccountStand-By Arrangements

ArgentinaBrazilBulgariaCroatia, Republic ofGuatemalaLatvia, Republic ofLithuania, Republic ofPeruRomaniaSri Lanka

TurkeyUruguayYugoslavia, Federal Republic of

Total Stand-By Arrangements

Extended ArrangementsColombiaIndonesiaJordanUkraine

Total Extended ArrangementsTotal General Resources Account

Date ofArrangement

March 10, 2000September 14, 2001February 27, 2002March 19, 2001April 1, 2002April 20, 2001August 30, 2001February 1, 2002October 31, 2001April 20, 2001

February 4, 2002April 1, 2002June 11, 2001

December 20, 1999February 4, 2000April 15, 1999September 4, 1998

Expiration

March 9, 2003December 13, 2002February 26, 2004May 18, 2002March 31, 2003December 19, 2002March 29, 2003February 29, 2004April 29, 2003August 19, 2002

December 31, 2004March 31, 2004May 31, 2002

December 19,2002December 31, 2003May 31, 2002September 3, 2002

TotalAmountAgreed

16,936,8001

12,144,4002

240,000200,000

84,00033,00086,520

255,000300,000200,000

12,821,200594,100200,000

44,095,020

1,957,0003,638,000

127,8801,919,9507,642,830

51,737,850

UndrawnBalance

7,180,4908,468,817

208,000200,000

84,00033,00086,520

255,000248,00048,320

4,627,200471,500

50,00021,960,847

1,957,0002,201,960

60,890726,950

4,946,80026,907,647


AP

PE

ND

IX IX

172 A

NN

UA

L RE

PO

RT

20

02

SDR DepartmentBalance Sheets

as at April 30, 2002 and 2001(In thousands ofSDRs)

2002 2001 2002 2001

AssetsCharges receivableOverdue assessments and charges (Note 3)

119,954108,863

Participants with holdings below allocations (Note 2)Allocations 12,484,980Less: SDR holdings 3,847,668

Allocations in excess of holdings 8,637,312

Total Assets 8,866,129

215,38798,245

12,646,2643,865,9398,780,325

9,093,957

LiabilitiesInterest payable

Participants with holdings above allocations (Note 2)SDR holdingsLess: allocations

Holdings in excess of allocations

Holdings by the General Resources AccountHoldings of SDRs by prescribed holders . . .Total Liabilities

120,458

15,778,796

8,948,350

6,830,446

1,484,927

430,298

8,866,129

215,861

14,690,440

8,787,066

5,903,374

2,436,744

537,978

9,093,957





SDR DepartmentIncome Statements



RevenueNet charges from participants with holdings below allocationsAssessments on SDR allocations

ExpensesInterest on SDR holdings

Net interest to participants with holdings above allocationsGeneral Resources AccountPrescribed holders

Administrative expenses

Net Income

2002

240,1772,409

242,586

186,61841,28312,276

240,1772,409

242,586

2001

400,2162,451

402,667

261,127112,51426,575

400,2162,451

402,667


SDR DepartmentStatements of Cash Flows


Cash flows from operating activitiesReceipts of SDRs

Transfers among participants and prescribed holdersTransfers from participants to the General Resources AccountTransfers from the General Resources Account to

participants and prescribed holdersTotal Receipts of SDRs

Uses ofSDRsTransfers among participants and prescribed holdersTransfers from participants to the General Resources AccountTransfers from the General Resources Account to

participants and prescribed holdersCharges paid in the SDR DepartmentOther

Total Uses of SDRs

2002

5,053,5503,992,991

4,944,80813,991,349

4,825,9713,937,218

4,944,808272,764

10,58813,991,349

2001

6,815,4045,800,216

6,087,36418,702,984

6,513,8365,682,687

6,087,364426,404

(7,307)18,702,984


A N N U A L R E P O R T 2 0 0 2 173


A P P E N D I X IX

SDR DepartmentNotes to the Financial Statementsas at April 30, 2002 and 2001

1. Nature of OperationsThe SDR is an international interest-bearing reserve assetcreated by the IMF following the First Amendment of theArticles of Agreement in 1969. A l l transactions and opera-tions involving SDRs are conducted through the S D RDepartment. The SDR was created as a supplement to exist-ing reserve assets and is allocated by the I M F to membersparticipating in the SDR Department. Its value as a reserveasset derives, essentially, from the commitments of partici-pants to hold and accept SDRs and to honor variousobligations connected with its proper functioning as areserve asset.

At April 30, 2002, all members of the I M F were partici-pants in the S D R Department. SDRs have been allocatedby the I M F to members that are participants in the S D RDepartment at the time of the allocation in proportion totheir quotas in the I M F . Six allocations have been made (in1970, 1971, 1972, 1979, 1980, and 1981) for a total ofS D R 21.4 billion. A proposed amendment of the IMF'sArticles of Agreement was approved by the ExecutiveBoard in January 1998 to allow for a special one-time allo-cation of SDRs equal to 21.4 billion. The amendment willenter into force after three-fifths of the members, having85 percent of the total voting power, have accepted it.Upon termination of participation or liquidation of theS D R Department, the I M F will provide to holders the cur-rencies received from the participants in settlement of theirobligations. The I M F is empowered to prescribe certainofficial entities as holders of SDRs; at April 30, 2002 and2001, 16 institutions were prescribed as holders. Prescribedholders do not receive allocations.

The S D R is also used by a number of international andregional organizations as a unit of account or as the basisfor their units of account. Several international conventionsalso use the S D R as a unit of account, notably thoseexpressing liability limits for the international transport ofgoods and services.

Uses of SDRsParticipants and prescribed holders can use and receiveSDRs in transactions and operations by agreement amongthemselves. Participants can also use SDRs in operations andtransactions involving the General Resources Account, suchas the payment of charges and repurchases. The I M Fensures, by designating participants to provide freely usablecurrency in exchange for SDRs, that a participant can use itsSDRs to obtain an equivalent amount of currency if it has aneed because of its balance of payments, its reserve position,or developments in its reserves.

General Allocations and Cancellations of SDRsThe I M F has the authority to create unconditional liquiditythrough general allocations of SDRs to participants in theSDR Department in proportion to their quotas in the IMF.The I M F cannot allocate SDRs to itself or to other holdersit prescribes. The Articles also provide for the cancellation

of SDRs, although to date there have been no cancellations.In its decisions on general allocations of SDRs, the IMF, asprescribed under its Articles, has sought to meet the long-term global need to supplement existing reserve assets insuch a manner as will promote the attainment of the IMF'spurposes and avoid economic stagnation and deflation, aswell as excess demand and inflation.

2. Summary of Significant Accounting PoliciesBasis of PresentationThe financial statements of the IMF are prepared in accor-dance with International Accounting Standards (IAS).Specific accounting principles and disclosure practices areexplained further below. The preparation of financial state-ments in conformity with IAS requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenue and expenses during the report-ing period. Actual results could differ from those estimates.

In financial year 2001, IAS 39, Financial Instruments:Recognition and Measurement was adopted and had no mate-rial effect on the SDR Department's financial statements.

Unit of AccountThe financial statements are expressed in terms of SDRs.The value of the S D R is determined by the IMF each day bysumming the values in U.S. dollars, based on marketexchange rates, of the currencies in the SDR valuation bas-ket. The IMF reviews the SDR valuation basket every fiveyears. The latest review was completed in October 2000 andthe new composition of the SDR valuation basket becameeffective on January 1, 2001. The value of the SDR in termsof U.S. dollars on the last business day prior to the change(December 29, 2000) was identical under both valuationbaskets. The currencies in the basket as of April 30, 2002and 2001 and their amounts were as follows:

Currency


Amount

0.42621.0

0.09840.577


Allocations and HoldingsAt April 30, 2002 and 2001, IMF net cumulative allocations toparticipants totaled SDR 21.4 billion. Participants with holdingsin excess of their allocations have established a net claim on theSDR Department, which is represented on the balance sheet asa liability. Participants with holdings below their allocations haveused part of their allocations, which results in a net obligation to

174 A N N U A L R E P O R T 2 0 0 2



the SDR Department and is presented as an asset of the SDRDepartment. Participants' net SDR positions as of April 30,2002 and 2001 were as follows:

Administrative ExpensesThe expenses of conducting the business of the SDR Depart-ment are paid by the IMF from the General ResourcesAccount, which is reimbursed in SDRs by the SDR Depart-ment at the end of each financial year. For this purpose, theSDR Department levies an assessment on all participants inproportion to their net cumulative allocations.

Interest and ChargesInterest is paid on holdings of SDRs. Charges are leviedon each participant's cumulative allocations plus any alloca-tions in excess of holdings of the participant and unpaidcharges. Interest on S D R holdings is paid quarterly.Charges on net cumulative allocations are also collectedquarterly. Interest and charges are levied at the same rateand are settled by crediting and debiting individual hold-ings accounts on the first day of the subsequent quarter.The S D R Department is required to pay interest to eachholder, whether or not sufficient SDRs are received to meetthe payment of interest. If sufficient SDRs are not receivedbecause charges are overdue, additional SDRs are tem-porarily created.

The rate of interest on the SDR is determined by refer-ence to a combined market interest rate, which is a weightedaverage of yields or rates on short-term instruments in thecapital markets of the euro area, Japan, the United Kingdom,and the United States. The combined market interest rateused to determine the SDR interest rate is calculated each Fri-day, using the yields or rates of that day. The SDR interestrate, which is set equal to the combined market interest rate,enters into effect on the following Monday and appliesthrough the following Sunday. The average SDR interest ratewas 2.79 percent for the year ended April 30, 2002 (4.46percent for the year ended April 30, 2001).

Overdue ObligationsAn allowance for losses resulting from overdue SDR obliga-tions would be created if and when the IMF were to expect aloss to be incurred; no losses have been incurred in the past,and it is the current expectation that no losses will beincurred in the future, and consequently no allowanceaccount has been established.

3. Overdue Assessments and ChargesAt April 30, 2002, assessments and charges amounting toSDR 108.9 million were overdue to the SDR Department(SDR 98.2 million at April 30, 2001). At April 30, 2002 and2001, six members were six months or more overdue inmeeting their financial obligations to the SDR Department.

Assessments and charges due from members that are sixmonths or more overdue to the SDR Department were asfollows:

2002 2001

TotalOverdue for six months or moreOverdue for three years or more

In millions of SDRs108.9104.274.2

98.291.063.6

The amount and duration of arrears as of April 30, 2002were as follows:

Longest OverdueTotal Obligation

InAfghanistan, Islamic State ofCongo, Democratic Republic ofIraqLiberiaSomaliaSudan

Total

millions of SDRs7.3

19.549.722.6

9.40.4

108.9

February 1996April 1992November 1990April 1986February 1991April 1991

A N N U A L R E P O R T 2 0 0 2 175

Cumulativeallocations

Holdingsof SDRsby participants

Net SDRpositions

21,433.3

19,626.4

1,806.9

12,485.0

3,847.7

8,637.3

8,948.3

15,778.7

(6,830.4)

21,433.3

18,556.4

2,876.9

12,646.3

3,866.0

8,780.3

8,787.0

14,690.4

(5,903.4)

ParticipantsGeneral Resources AccountPrescribed holders

Less: Overdue charges receivableTotal holdings

2002

In millions

19,626.51,484.9

430.321,541.7

108.421,433.3

2001

of SDRs18,556.42,436.7

538.021,531.1

97.821,433.3

A summary of S D R holdings is provided below:

2002 2001Below Above Below Above

Total Allocations Allocations Total Allocations AllocationsIn millions of SDRs


A P P E N D I X IX

Schedule 1

SDR DepartmentStatements of Changes in SDR Holdings


Total holdings, beginning of the year

Receipts of SDRsTransfers among participants and prescribed holders

Transactions by agreement

LoansSettlement of financial obligations

SAF and PRGF loansSAF loans under PRGF TrustSAF repayments and interestSpecial charges on SAF, PRGF, Trust Fund .PRGF contributions and paymentsPRGF repayments and interestHIPC paymentsPRGF-HIPC contributionsSCA-2 refundsPost-Conflict Subsidy payment

Net interest on SDRs

Transfers from participants to the General Resources AccountRepurchasesChargesQuota paymentsInterest on SDRsAssessment on SDR allocation

Transfers from the General Resources Account toparticipants and prescribed holders

PurchasesIn exchange for currencies of other members'

acquisitions to pay chargesRemunerationOther

Refunds and adjustmentsTotal receipts

Participants

18,556,379

3,565,622

250154,641

267,991———

86,740—

6,726719

—773

212,547

————

2,360,765

1,129,7011,360,694

93,6489,240,817


2,436,744

—

——

—————

—

1,630,6402,303,949

25055,7732,379

—

—3,992,991

PrescribedHolders

537,978

103,453

135,605

—17,136

294,099

330,349—

60,6831,182

—15,032

————

—757,541

Total2002

21,531,101

3,669,075

250290,246

267,991—

17,1362

180,839330,349

6,72661,402

1,182773

227,579

1,630,6402,303,949

25055,7732,379

2,360,765

1,129,7011,360,694

93,64813,991,349

2001

21,538,408

5,046,467

165,619378,571

111,54424,94015,214

3318,612294,456

3,352153,858

1,199—

301,569

3,198,5922,417,144

64,500117,529

2,451

3,165,713

1,107,4571,782,790

31,40418,702,984

176 A N N U A L R E P O R T 2 0 0 2




Uses of SDRsTransfers among participants and prescribed holders

Transactions by agreementOperations

LoansSettlement of financial obligations

IMF-related operationsSAF and PRGF loansSAF loans under PRGF Trust .SAF repayments and interestSpecial charges on SAF, PRGF, Trust FundPRGF contributions and paymentsPRGF repayments and interestHIPC paymentsPRGF-HIPC contributionsSCA-2 refundsPost-Conflict Subsidy payment

Transfers from participants to the General Resources AccountRepurchasesChargesQuota paymentsAssessment on SDR allocation

Transfers from the General Resources Account toparticipants and prescribed holders

PurchasesIn exchange for currencies of other members

Acquisitions to pay charges . .RemunerationOther

Refunds and adjustments

Charges paid in the SDR departmentNet charges due

Total usesCharges not paid when dueSettlement of unpaid charges

Total holdings, end of the year

Participants

3,367,085

250135,855

17,1362

94,099330,349

14,7921,182

1,630,6402,303,949

2502,379

283,3528,181,320

12,177(1,589)

19,626,464


2,360,765

1,129,7011,360,694

93,648

4,944,808

1,484,927

PrescribedHolders

301,990

154,391

267,991

86,740

6,72646,610

773

865,221

430,298

T012002

3,669,075

250290,246

267,991

17,1362

180,839330,349

6,72661,402

1,182773

1,630,6402,303,949

2502,379

2,360,765

1,129,7011,360,694

93,648

283,35213,991,349

12,177(1,589)

21,541,689

tal2001

5,046,467

165,619378,571

111,54424,94015,214

3318,612294,456

3,352153,858

1,199

3,198,5922,417,144

64,5002,451

3,165,713

1,107,4571,782,790

31,404

419,09818,702,984

17,274(24,581)

21,531,101

A N N U A L R E P O R T 2 0 0 2 177


A P P E N D I X IX

Schedule 2

SDR DepartmentAllocations and Holdings of Participants


Holdings

Participant

Afghanistan, Islamic State ofAlbaniaAlgeriaAngolaAntigua and BarbudaArgentinaArmenia, Republic ofAustraliaAustriaAzerbaijanBahamas, TheBahrain, Kingdom ofBangladeshBarbadosBelarus, Republic ofBelgiumBelizeBeninBhutanBoliviaBosnia and HerzegovinaBotswanaBrazilBrunei DarussalamBulgariaBurkina FasoBurundiCambodiaCameroonCanadaCape VerdeCentral African RepublicChadChileChinaColombiaComorosCongo, Democratic Republic ofCongo, Republic ofCosta RicaCote d'IvoireCroatia, Republic ofCyprusCzech RepublicDenmarkDjiboutiDominicaDominican RepublicEcuadorEgypt

NetCumulativeAllocations

26,703—

128,640——

318,370—

470,545179,045

—

10,2306,200

47,1208,039

—485,246

—9,409

—26,70320,4814,359

358,670——

9,40913,69715,41724,463

779,290620

9,3259,409

121,924236,800114,271

71686,3099,719

23,72637,82844,20519,438

—178,864

1,178592

31,58532,929

135,924

Total

64,1367,197

1396

143,1353,275

89,429137,932

3,482127810

22,00450

168

383,2671,396

243217

27,3161,123

31,79379,8076,427

34,752384195

1,984137

498,148115253

23,578691,434109,108

14—

171216

36471,656

1,1761,060

61,897105

6689

2,44431,959

Percent ofCumulativeAllocations

—5.6——

45.0—

19.077.0

—

1.213.146.7

0.6—

79.0—

2.6—

102.35.5

729.422.3

——

4.11.4

12.90.6

63.91.80.60.6

19.3292.095.5

2.0—

1.80.9

1.0162.1

6.1—

34.68.91.02.27.4

23.5

Above(Below)

Allocations

(26,703)64,136

(121,443)139

6

(175,235)3,275

(381,116)(41,113)

3,482(10,103)(5,390)

(25,116)(7,989)

168

(101,979)1,396

(9,166)217613

(19,358)27,434

(278,863)6,427

34,752(9,025)

(13,502)(13,433)(24,326)

(281,142)(609)

(9,273)(9,356)

(98,346)454,634

(5,163)(702)

(86,309)(9,548)

(23,510)(37,464)27,451

(18,262)1,060

(116,967)(1,073)

(586)(30,896)(30,485)

(103,965)

178 A N N U A L R E P O R T 2 0 0 2






Holdings

Participant

El SalvadorEquatorial GuineaEritreaEstonia, Republic ofEthiopia

FijiFinlandFranceGabonGambia, The

GeorgiaGermanyGhanaGreeceGrenada

GuatemalaGuineaGuinea-BissauGuyanaHaiti

HondurasHungaryIcelandIndiaIndonesia

Iran, Islamic Republic ofIraqIrelandIsraelItaly

JamaicaJapanJordanKazakhstan, Republic ofKenya

KiribatiKoreaKuwaitKyrgyz RepublicLao People's Democratic Republic

Latvia, Republic ofLebanonLesothoLiberiaLibya

Lithuania, Republic ofLuxembourgMacedonia, former Yugoslav Republic ofMadagascarMalawi


24,9855,812

——

11,160

6,958142,690

1,079,87014,0915,121

1,210,76062,983

103,544930

27,67817,604

1,21214,53013,697

19,057—

16,409681,170238,956

244,05668,46487,263

106,360702,400

40,613891,690

16,887—

36,990—

72,91126,744

—9,409

4,3933,739

21,00758,771

—16,9558,379

19,27010,975

Total

24,982583

—84

287

4,860140,895406,789

47849

5631,385,819

12,6868,421

7

6,3991,451

1462,1254,225

32417,832

699,570

17,671

267,510—

44,4941,431

248,129

7231,834,366

1,000608579

93,270

88,5971,6786,042

15219,544

458—

445,484

46,2435,327

50880

516


99.910.0

——

2.6

69.898.737.7

3.41.0

114.520.1

8.10.7

23.18.2

12.114.630.8

1.7—

0.41.47.4

109.6—

51.01.3

35.3

1.8205.7

5.9—1.6—

4.5331.3

—64.2

444.912.2

—758.0

—31.46.10.44.7

Above(Below)

Allocations

(3)(5,229)

—84

(10,873)

(2,098)(1,795)

(673,081)(13,613)

(5,072)

563175,059(50,297)(95,123)

(923)

(21,279)(16,153)(1,066)

(12,405)(9,472)

(18,733)17,832

(16,340)(671,600)(221,285)

23,454(68,464)(42,769)

(104,929)(454,271)

(39,890)942,676(15,887)

608(36,411)

9(69,641)61,853

1,678(3,367)

15215,151(3,281)

(21,007)386,713

46,243(11,628)(7,871)

(19,190)(10,459)

A N N U A L R E P O R T 2 0 0 2 179


A P P E N D I X IX




Holdings

Participant

MalaysiaMaldivesMaliMaltaMarshall Islands

MauritaniaMauritiusMexicoMicronesia, Federated States ofMoldova, Republic of

MongoliaMoroccoMozambiqueMyanmarNamibia

NepalNetherlandsNew ZealandNicaraguaNiger

NigeriaNorwayOmanPakistanPalau

PanamaPapua New GuineaParaguayPeruPhilippines

Poland, Republic ofPortugalQatarRomaniaRussian Federation

RwandaSt. Kitts and NevisSt. LuciaSt. Vincent and the GrenadinesSamoa

San Marino, Republic ofSao Tome & PrincipeSaudi ArabiaSenegalSeychelles

Sierra LeoneSingaporeSlovak RepublicSlovenia, Republic ofSolomon Islands


139,048282

15,91211,288

9,71915,744

290,020——

85,689—

43,474—

8,105530,340141,32219,4839,409

157,155167,770

6,262169,989

26,3229,300

13,69791,319

116,595

53,32012,82275,950

—

13,697—

742354

1,142

620195,52724,462

406

17,45516,475

—25,431

654

Total

102,389256225

26,675

10116,868

283,4031,156

652

1590,570

51793

17

38567,328

13,386151228

1,114249,961

5,3563,633

2,2506,317

81,804660

12,865

22,18350,77018,3342,8313,290

9,0401

1,46532

2,352

35910

203,3471,846

16

9,288121,626

5314,180

3


73.690.7

1.4236.3

1.0107.197.7

——

105.7—

1.8—

0.5107.0

9.50.82.4

0.7149.085.52.1

8.567.9

597.20.7

11.0—

95.2143.0

3.7—

66.0—

197.59.0

206.0

1.7104.0

7.54.0

53.2738.2

—16.4

0.4

Above(Below)

Allocations

(36,659)(26)

(15,687)15,387

(9,618)1,124

(6,617)1,156

652

154,881

51(42,681)

17

(8,067)36,988

(127,936)(19,332)(9,181)

(156,041)82,191

(906)(166,356)

(24,072)(2,983)68,107

(90,659)(103,730)

22,183(2,550)5,512

(73,119)3,290

(4,657)1

723(322)

1,210

359(610)

7,820(22,616)

(390)

(8,167)105,151

531(21,251)

(651)

180 A N N U A L R E P O R T 2 0 0 2






Holdings

Participant

SomaliaSouth AfricaSpainSri LankaSudanSurinameSwazilandSwedenSwitzerlandSyrian Arab RepublicTajikistan, Republic ofTanzaniaThailandTogoTongaTrinidad and TobagoTunisiaTurkeyTurkmenistan, Republic ofUgandaUkraineUnited Arab EmiratesUnited KingdomUnited StatesUruguayUzbekistan, Republic ofVanuatuVenezuelaVietnamYemen, Republic of

Yugoslavia, Federal Republic of (Serbia/Montenegro)ZambiaZimbabweAbove allocationsBelow allocations

Total ParticipantsGeneral Resources AccountPrescribed holdersOverdue charges


13,697220,360298,80570,86852,1927,7506,432

246,525—

36,564—

31,37284,65210,975

—

46,23134,243

112,307—

29,396

38,7371,913,0704,899,530

49,977

—316,89047,65828,74356,66568,29810,200

8,948,35012,484,980

21,433,330

108,35921,541,689

Total

222,547283,898

1,422—

1,5222,454

155,737260,665

462

1,062204

4,740121162

1875,852

18,735

602

127,2471,543

230,8338,667,918

1,208167802

7,4039,198

43,8944,770

53,1944

15,778,7963,847,668

19,626,4641,484,927

430,298

21,541,689


101.095.0

2.0—

19.638.263.2

—1.3

—0.75.61.1—

0.417.116.7

—2.0

4.012.1

176.92.4

——

2.319.3

152.78.4

77.9—

176.330.8

Above(Below)

Allocations

(13,697)2,187

(14,907)(69,446)(52,192)(6,228)(3,978)

(90,788)260,665(36,102)

1,062(31,168)(79,912)(10,854)

162

(46,044)(28,391)(93,572)

—(28,794)127,247(37,194)

(1,682,237)3,768,388

(48,769)167802

(309,487)(38,460)15,151

(51,895)(15,104)(10,196)

6,830,446(8,637,312)

181A N N U A L R E P O R T 2 0 0 2


A P P E N D I X IX

PricewaterhouseCoopers LLPSuite 800W1301 K Street, NWWashington DC 20005Telephone (202) 414 1000Facsimile (202) 414 1301

Report of the Independent Accountants

To the Board of Governorsof the International Monetary Fund:

We have audited the accompanying combined balance sheets as at April 30, 2002 and 2001, and the related combined state-ments of income and changes in resources for the years then ended of the following entities:

Poverty Reduction and Growth Facility TrustPoverty Reduction and Growth Facility—Heavily Indebted Poor Countries Trust and Related Accounts

We have also audited the accompanying balance sheets at April 30, 2002 and 2001, and the related statements of income andchanges in resources for the years then ended of the following entities:

Poverty Reduction and Growth Facility Administered Accounts— Austria,— Belgium,— Botswana,— Greece,— Indonesia,— Islamic Republic of Iran,— Portugal.

Other Administered Accounts— Administered Account Japan,— Administered Account for Selected Fund Activities - Japan,— Framework Administered Account for Technical Assistance Activities,— Administered Account - Spain,— Administered Account for Rwanda,— Supplementary Financing Facility Subsidy Account,— Post-Conflict Emergency Assistance Subsidy Account.

These financial statements are the responsibility of the management of the International Monetary Fund, as trustee of the enti-ties listed above. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with International Standards on Auditing. Those standards require that we plan and per-form the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above give a true and fair view of the financial position of the entities listedabove as at April 30, 2002 and 2001, and the results of their operations for the years then ended in conformity with Interna-tional Accounting Standards.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The sup-plementary information on pages 188 to 191 and 202 to 207 is presented for purposes of additional analysis and is not arequired part of the basic financial statements. The supplementary information has been subjected to the auditing proceduresapplied in the audits of the respective financial statements and, in our opinion, is fairly stated, in all material respects, in relationto the financial statements taken as a whole.

May 24, 2002

182 A N N U A L R E P O R T 2 0 0 2

PRICEWATERHOUSECOOPERS PCw



Poverty Reduction and Growth Facility Trust

Combined Balance Sheetsas at April 30, 2002 and 2001


2002 2001AssetsCash and cash equivalentsInvestments (Note 3)Loans receivable (Note 4) . .Interest receivable

Total Assets . . . . .

Liabilities and ResourcesBorrowings (Note 5)Interest payableOther liabilities

Total Liabilities

ResourcesTotal Liabilities and Resources

2,684,6412,629,2856,172,848

15,99311,502,767

6,764,43442,412

766,806,922

4,695,84511,502,767

860,3574,178,2575,899,478

18,71610,956,808

6,352,84172,68612,506

6,438,033

4,518,77510,956,808





Combined Statements of Income and Changes in Resourcesfor the Years Ended April 30, 2002 and 2001


2002 2001Balance, beginning of the year

Investment income (Note 3)Interest on loansInterest expense .Other expenses

Operational income (loss)Contributions (Note 6)

Transfers from the SpecialDisbursement Account

Transfers through the SpecialDisbursement Account to thePRGF-HIPC Trust (Note 8)Net changes in resources

Balance, end of the year

4,518,775 4,305,726232,34430,292

(174,670)(1,650)86,31660,096146,412

92,258

(61,600)177,070

4,695,845

272,46528,916

(239,603)(1,645)60,133126,992187,125

80,924

(55,000)213,049

4,518,775


A N N U A L R E P O R T 2 0 0 2 183


A P P E N D I X IX

Poverty Reduction and Growth Facility TrustNotes to the Combined Financial Statements

as at April 30, 2002 and 2001

1. Nature of OperationsThe Poverty Reduction and Growth Facility Trust (PRGFTrust), for which the IMF is Trustee, was established inDecember 1987 and was extended and enlarged in February1994 to provide loans on concessional terms to qualifyinglow-income developing country members. The resources ofthe Trust are held separately from the assets of all otheraccounts of, or administered by, the IMF and may not beused to discharge liabilities or to meet losses incurred in theadministration of other accounts.

The operations of the Trust are conducted through aLoan Account, a Reserve Account, and a Subsidy Account.Combining balance sheets and income statements and state-ments of changes in resources for each of these accounts areprovided in Note 9 to these financial statements.

Loan AccountThe resources of the Loan Account consist of the proceedsfrom borrowings, repayments of principal, and interest pay-ments on loans extended by the Trust. At April 30, 2002,loans totaling SDR 6,172.8 million were outstanding (SDR5,899.5 million at April 30, 2001). At April 30, 2002, theresources of the Loan Account also included an advance fromthe Reserve Account of SDR 41.5 million resulting from thenon-payment of principal by Zimbabwe.

Reserve AccountThe resources of the Reserve Account consist of amountstransferred by the I M F from the Special DisbursementAccount and net earnings from investment of resources heldin the Reserve Account and in the Loan Account.

The resources held in the Reserve Account are to be usedby the Trustee, in the event that amounts payable from bor-rowers' principal repayments and interest, together with theauthorized interest subsidy, are insufficient to repay loan prin-cipal and interest on borrowings of the Loan Account.

Subsidy AccountThe resources held in the Subsidy Account consist of donationsto the Trust, including transfers of net earnings from PRGFAdministered Accounts' SDR 400 million transferred by theIMF from the Special Disbursement Account, net earnings onloans made to the Trust for the Subsidy Account, and the netearnings from investment of Subsidy Account resources.

The resources available in the Subsidy Account are drawnby the Trustee to pay the difference, with respect to eachinterest period, between the interest due from the borrowersunder the Trust and the interest due on Loan Accountborrowings.

2. Summary of Significant Accounting Policies

Basis of PresentationThe financial statements of the PRGF Trust are prepared inaccordance with International Accounting Standards (IAS).Specific accounting principles and disclosure practices are

explained further below. The preparation of financial state-ments in conformity with IAS requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenue and expenses during the report-ing period. Actual results could differ from those estimates.

In financial year 2001, IAS 39, Financial Instruments:Recognition and Measurement was adopted and had no mate-rial effect on the PRGF Trust's financial statements.

Revenue and Expense RecognitionThe financial statements of the Trust are maintained on theaccrual basis; accordingly, income is recognized as it isearned, and expenses are recorded as they are incurred.

Unit of AccountThe financial statements are expressed in terms of SDRs. Thevalue of the SDR is determined by the IMF each day bysumming the values in U.S. dollars, based on marketexchange 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 October 2000 and thenew composition of the SDR valuation basket became effec-tive on January 1, 2001. The value of the SDR in terms ofU.S. dollars on the last business day prior to the change(December 29, 2000) was identical under both valuationbaskets. The currencies in the basket as of April 30, 2002 and2001 and their amounts were as follows:

Currency AmountEuroJapanese yenPound sterlingU.S. dollar

0.42621.00.09840.577

As of April 30, 2002, one SDR was equal to 1.26771 U.S.dollars (one S D R was equal to 1.26579 U.S. dollars as ofApril 30, 2001).

Cash and Cash EquivalentsCash and cash equivalents include short-term deposits with amaturity of less than ninety days. These deposits are denomi-nated in SDRs or other currency and are carried at cost, notexceeding market value. Interest received on these instru-ments varies and is based on prevailing market rates.

Investments

The resources of the Trust are invested pending their use.The Trust invests in debt securities and fixed-term deposits,either directly or by participation in an investment pool.Investments are marked to market on the last business day ofthe accounting period. Purchases are valued and reflected onthe trade date basis and sales are based on the actual settle-ment date valuations. Investment income comprises interest

184 A N N U A L R E P O R T 2 0 0 2



earned on investments, realized and unrealized gains andlosses on investments, and currency valuation differences aris-ing from exchange rate movements against the SDR.

Interest rate risk is managed by limiting the investmentportfolio to a weighted-average effective duration that doesnot exceed three years. Currency risk is minimized by invest-ing in securities denominated in SDRs or in the constituentcurrencies of the SDR basket. Risk is further minimized byensuring that the currency composition of the investmentportfolio matches, as closely as possible, the currency compo-sition of the SDR basket.

Loans

Loans in the Trust are valued at historical cost. Allowancesfor loan losses would be established if and when the Trustexpects to incur a loss; no losses have been incurred in thepast, and it is the current expectation that no losses will beincurred in the future. Resources held in the ReserveAccount are to be used to meet obligations to lenders, if sorequired.

ContributionsBilateral contributions are reflected as increases in resourcesafter the achievement of specified conditions and are subjectto bilateral agreements stipulating how the resources are tobe used.

TransfersInternal transfers of resources within the IMF are accountedfor under the accrual method of accounting.

Foreign Currency TranslationForeign currency transactions are recorded at the rate ofexchange on the date of the transaction. At the balance sheetdate, monetary assets and liabilities denominated in foreigncurrencies are reported using the closing exchange rates.Exchange differences arising on the settlement of transactionsat rates different from those at the originating date of thetransaction and unrealized foreign exchange differences onunsettled foreign currency monetary assets and liabilities areincluded in the determination of net income.

3. InvestmentsThe maturities of the investments are as follows:

Maturity as at April 30 2002 2001In thousands of SDRs

Less than 1 year1-3 years3-5 yearsOver 5 yearsTotal

1,794,460724,90991,99717,919

425,5483,430,643

297,51624,550

2,629,285 4,178,257

At April 30, the investments consisted of the following:

2002 2001

Debt securitiesFixed-term depositsTotal

In thousands of SDRs

2,271,428 3,962,729357,857 215,528

2,629,285 4,178,257

At April 30, investment income comprised:2002 2001In thousands of SDRs

Interest incomeRealized lossesUnrealized gainsExchange rate lossesTotal

207,462(26,318)52,705(1,505)

232,344

242,912(76,692)107,979

(1,734)272,465

4. Loans ReceivableResources of the Loan Account are committed to qualifyingmembers for a three-year period, upon approval by theTrustee of a three-year arrangement in support of the mem-ber's macroeconomic and structural adjustment programs.Interest on the outstanding loan balances is currently set atthe rate of 1/2 of 1 percent a year. Scheduled repayments ofloans by borrowers are summarized below:

Period of Repayment,Financial Year

Ending April 30

20032004200520062007

2008 and beyondOverdue

Total

In thousands of SDRs722,241834,998876,190857,453730,949

2,109,52341,494

6,172,848

The above includes one member (Zimbabwe) that is over-due at the end of financial year 2002 for more than sixmonths in the amount of SDR 41.5 million.

As of April 30, 2002 and 2001, use of credit in the Trustby the largest users was as follows:

2002 2001

Largest user of creditThree largest users of creditFive largest users of credit

In millions of SDRsand percent of total PRGF credit

636.2 10.3% 716.6 12.2%1,571.6 25.5% 1,508.2 25.6%2,138.3 34.6% 2,039.2 34.6%

5. BorrowingsThe following summarizes the borrowing agreements con-cluded as of April 30, 2002 and 2001:

Amount Undrawn2002 2001

Loan AccountSubsidy Account

In thousands of SDRs6,613,837 3,448,248

3,997 4,664

The Trustee has agreed to hold and invest, on behalf of alender, principal repayments of Trust borrowing in a suspenseaccount within the Loan Account. Principal repayments will beaccumulated until the final maturity of the borrowing, whenthe full proceeds are to be transferred to the lender. Amountsdeposited in this account are invested by the Trustee, andpayments of interest to the lender are to be made exclusivelyfrom the earnings on the amounts invested.

The Trust borrows on such terms and conditions as agreedbetween the Trust and the lenders. Interest rates on borrow-


A P P E N D I X IX

ings at April 30, 2002 and April 30, 2001 varied between 0.5percent and 7.4 percent a year. The principal amounts of theborrowings are repayable in one installment at maturity dates.

Scheduled repayments of borrowings are summarized below:

Period ofRepayment,

Financial YearEnding April 30

20032004200520062007

2008 and beyondTotal

In thousands of SDRs525,454704,176953,566

1,504,589982,706

2,093,9436,764,434

Borrowings and repayments during the financial year endedApril 30, 2002 amounted to SDR 1,238 million and SDR 826million, respectively (SDR 786 million and S D R 657 million,respectively for the financial year ended April 30, 2001).

6. ContributionsThe Trustee accepts contributions for the Subsidy Accounton such terms and conditions as agreed between the Trustand the contributor. At April 30, 2002, cumulative contribu-tions received, including transfers from the SpecialDisbursement Account, amounted to S D R 2,352.5 million(SDR 2,292.4 million at April 30, 2001).

7. Commitments Under Loan ArrangementsA n arrangement is a decision of the I M F that gives amember the assurance that the institution stands ready toprovide foreign exchange or SDRs during a specified

period and up to a specified amount in accordance withthe terms of the decision. At Apri l 30, 2002, undrawnbalances under 35 arrangements amounted to S D R2,700.6 million (SDR 1,997.3 million under 37 arrange-ments at Apri l 30, 2001).

8. Transfers Through the Special DisbursementAccountThe expenses of conducting the business of the Trust arepaid by the General Resources Account of the IMF andreimbursed by the Reserve Account of the Trust throughthe Special Disbursement Account; corresponding transfersare made from the Reserve Account to the Special Disburse-ment Account when and to the extent needed. For financialyears 2002 and 2001, the Executive Board of the IMFdecided to forgo such reimbursement to the GeneralDepartment and to transfer an equivalent amount from theReserve Account, through the Special DisbursementAccount, to the P R G F - H I P C Trust. The amounts trans-ferred for financial years 2002 and 2001 were S D R 61.6million and S D R 55.0 million, respectively.

Resources of up to S D R 250 million may be trans-ferred, as needed, from the Reserve Account through theSpecial Disbursement Account to the P R G F - H I P C Trustto be used to provide grant or loans to eligible membersunder the H I P C initiative. At April 30, 2002 and 2001,S D R 43.5 million had been transferred for this purpose.

9. Combining Balance Sheets and Statements ofIncome and Changes in ResourcesThe balance sheets and income statements and changes inresources for each of the accounts in the PRGF Trust arepresented below:

Note 9

Combining Balance Sheetsas at Apri l 30, 2002 and 2001

AssetsCash and cash equivalentsInvestments (Note 3)Loans receivable (Note 4)Accrued account transfersInterest receivable

Loan Account

2002

341,378204,657

6,172,84814,22114,363

2001

159,594215,529

5,899,47827,23113,245


Reserve Account

2002

1,263,5611,591,760

—13,068

1,402

2001

519,6952,200,508

—30,647

5,119

Subsidy Account

2002

1,079,702832,868

—(27,289)

228

2001

181,0681,762,220

—(57,878)

352

Combined

2002

2,684,6412,629,2856,172,848

—15,993

2001

860,3574,178,2575,899,478

—18,716

Total Assets

Liabilities and ResourcesBorrowings (Note 5)Interest payableOther liabilities

Total LiabilitiesResources

Total Liabilities and Resources

6,747,467 6,315,077 2,869,791 2,755,969 1,885,509 1,885,762 11,502,767 10,956,808

6,664,950 6,244,02440,947

766,705,973

41,4946,747,467

71,02231

6,315,077—

6,315,077

— 12,475— 12,475

99,4841,465

—

108,8171,664

—

6,764,43442,412

76

6,352,84172,68612,506

100,949 110,4812,869,791 2,743,494 1,784,560 1,775,281

6,806,922 6,438,0334,695,845 4,518,775

2,869,791 2,755,969 1,885,509 1,885,762 11,502,767 10,956,808

186 A N N U A L R E P O R T 2 0 0 2



Note 9 (concluded)

Combining Statements of Income and Changes in Resourcesfor the Years Ended Apri l 30, 2002 and 2001


Balance, beginning of the yearInvestment income (Note 3)Interest on loansInterest expenseOther expenses

Operational (loss) incomeContributions (Note 6)

Transfers from the Special

Loan Account2002

19130,292

(172,875)(76)

(142,468)—

(142,468)

Disbursement Account (Note 8)Transfers through the Special

Disbursement Account to thePRGF-HIPC Trust (Note 8)

Transfers between:Reserve and Subsidy AccountsLoan and Reserve AccountsLoan and Subsidy AccountsNet changes in resources


—

—41,677

142,28541,49441,494

2001

2828,916

(237,524)(82)

(208,662)—

(208,662)

—

—

—(3,891)

212,553——

Reserve Account2002

2,743,494138,942

——

(1,574)137,368

—137,368

92,258

(61,600)

(52)(41,677)

—126,297

2,869,791

20012,558,354

155,829——

(1,563)154,266

—154,266

80,924

(55,000)

1,0593,891

—185,140

2,743,494

Subsidy Account2002

1,775,28193,211

—(1,795)

—91,41660,096

151,512

—

—

52—

(142,285)9,279

1,784,560

20011,747,372

116,608—

(2,079)—

114,529126,992241,521

—

(1,059)—

(212,553)27,909

1,775,281

Combined2002

4,518,775232,344

30,292(174,670)

(1,650)86,31660,096

146,412

92,258

(61,600)

———

177,0704,695,845

20014,305,726

272,46528,916

(239,603)(1,645)60,133

126,992187,125

80,924

(55,000)

—

—213,049

4,518,775

A N N U A L R E P O R T 2 0 0 2 187


A P P E N D I X IX

Schedule 1

Poverty Reduction and Growth Facility TrustSchedule of Outstanding Loans

as at April 30, 2002

Member

AlbaniaArmenia, Republic ofAzerbaijanBangladeshBeninBoliviaBurkina FasoBurundiCambodiaCameroonCape VerdeCentral African RepublicChadComorosCongo, Democratic Republic ofCongo, Republic ofCote d'IvoireDjiboutiEquatorial GuineaEthiopiaGambia, TheGeorgiaGhanaGuineaGuinea-BissauGuyanaHaitiHondurasKenyaKyrgyz RepublicLao People's Democratic RepublicLesotho

(In thousands of SDKs)

PRGF Loan Account

Balance59,441

114,28798,00014,37555,547

161,79389,005

1,93466,985

209,8801,230

24,48077,230

——

12,506421,795

9,087440

86,57620,610

190,725275,50597,21514,74070,90015,175

125,25078,647

129,31732,52014,049

Macedonia, former Yugoslav Republic of 29,004MadagascarMalawiMaliMauritaniaMoldova, Republic ofMongoliaMozambiqueNepalNicaraguaNigerPakistanRwandaSao Tome and PrincipeSenegalSierra LeoneSomaliaSri LankaTajikistan, Republic ofTanzaniaTogoUgandaVietnamYemen, Republic ofZambiaZimbabwe

Total loans outstanding

101,37456,578

126,04377,87118,48035,791

154,3654,476

125,33072,714

513,66061,880

1,902202,532109,267

—50,40078,280

291,22044,208

213,790270,040238,750636,165

89,4846,172,848

Percent0.961.851.590.230.902.621.440.031.093.400.020.401.25

——

0.206.830.150.011.400.333.094.461.570.241.150.252.031.272.090.530.230.471.640.922.041.260.300.582.500.072.031.188.321.000.033.281.77

—0.821.274.720.723.464.373.87

10.311.46

100.00

StructuralAdjustment Facility1

Balance

———

1,750—

6,636——————

540142,910

———

1,03216,958

—————

3,198————

586————

2,032682

——————————

10,8088,840

——————

145,400—

341,372

Percent

———

0.51—

1.94——————

0.1641.86

———

0.304.97

—————

0.94————

0.17————

0.600.20

————————

—3.172.59

——————

42.59—

100.00

1Since Structural Adjustment Facility (SAF) loans have been disbursed in connection with PRGFarrangements, the above list includes these loans, as well as loans disbursed to members under SAF arrange-ments. These loans are held by the Special Disbursement Account and reflected in the financial statementsof the General Department. Repayments of all SAF loans are transferred to the PRGF Reserve Accountwhen received.

188 A N N U A L R E P O R T 2 0 0 2




Contributions to and Resources of the Subsidy Accountas at April 30, 2002


Contributor1

Direct contributions to the Subsidy AccountArgentinaAustraliaBangladeshCanadaChina

Czech RepublicDenmarkEgyptFinlandGermany

IcelandIndiaIrelandItalyJapan

KoreaLuxembourgMoroccoNetherlandsNorway

SwedenSwitzerlandTurkeyUnited KingdomUnited States

Total direct contributions to the Subsidy Account

Net income transferred from P R G F Administered AccountsAustriaBelgiumBotswanaChileGreece

IndonesiaIran, Islamic Republic ofPortugal

Total net income transferred from Administered AccountsTotal contributions received

Transfers from Special Disbursement AccountTotal contributions received and transfers from Special

Disbursement AccountCumulative net income of the Subsidy AccountResources disbursed to subsidize Trust lending

Total resources of the Subsidy Account

Amount

18,1334,488

387176,398

7,100

8,00038,2998,000

22,684129,880

3,0005,7393,769

142,215506,997

31,1986,7665,806

85,48428,074

110,88728,8404,000

296,673126,079

1,798,896

39,56375,877

1,4462,910

25,630

3,9931,2102,945

153,5741,952,470

400,000

2,352,470796,472

(1,364,382)1,784,560

Schedule 2

1In addition to direct contributions, a number of members also make loans available to the LoanAccount on concessional terms. See Schedule 3.

A N N U A L R E P O R T 2 0 0 2 189


A P P E N D I X IX

Schedule 3

Poverty Reduction and Growth Facility TrustSchedule of Borrowing Agreements


Member

InterestRate

(in percent)Amount ofAgreement

AmountDrawn

OutstandingBalance

Loan AccountPrior to enlargement of PRGF

CanadaFranceGermanyItalyJapan

KoreaNorwaySpain

Total prior to enlargement of PRGF

For enlargement of PRGFBelgiumCanadaChinaDenmarkEgypt

FranceGermanyItalyJapanKorea

NetherlandsNorwayOPEC Fund for International DevelopmentSpainSwitzerland

Total for enlargement of PRGFResources held pending repayment

Total—Loan Account

Subsidy AccountMalaysia (1994 loans)MaltaPakistanSingaporeTunisiaUruguay

Total—Subsidy Account

Fixed1

0.502

Variable3

Variable3

Variable3

Variable3

Variable3

Variable3

Variable 3

Variable3

Variable3

Variable3

Variable3

Variable2

Variable3

Variable3

Variable3

Variable3

Variable3

Variable3

Variable3

0,50Variable3

2.000.500.502.000.50

Variable7

300,000800,000700,000370,000

2,200,000

65,00090,000

220,0004,745,000

350,000400,000200,000100,000155,600

2,100,0002,050,0001,010,0002,934,800

27,700

450,00060,00039,4415

192,000401,700

10,471,241—

15,216,241

40,0002,730

10,00080,000

3,5517,200

143,481

300,000800,000700,000370,000

2,200,000

65,00090,000

216,4294

4,741,429

198,041271,069100,00021,180

100,000

649,889537,904254,913

1,369,71327,700

29,93060,00036,73248,633

151,7003,857,404

—8,598,833

40,0002,7306,003

80,0003,5517,200

139,484

164,181292,856325,091189,828

1,194,142

23,48239,86432,067

2,261,511

198,041271,069100,00021,180

100,000

649,889537,904254,913

1,369,71327,700

29,93060,00036,73248,633

151,7003,857,404546,0356

6,664,950

40,0002,7306,003

40,0003,5517,200

99,484

1The loans under this agreement are made at market-related rates of interest fixed at the time the loan was disbursed.2The agreement with France made before the enlargement of PRGF (SDR 800 million) provides that the interest rate shall be 0.5 percent on the first

SDR 700 million drawn, and for variable, market-related rates of interest thereafter. The agreement with France made for the enlargement of the PRGF(SDR 2.1 billion) provides that the interest rate shall be 0.5 percent until the cumulative implicit interest subsidy reaches SDR 250 million, and at variable,market-related rates of interest thereafter.

3The loans under these agreements are made at variable, market-related rates of interest.4The agreement expired with an undrawn balance of SDR 3.6 million.5The agreement with the OPEC Fund for International Development is for an amount of $50 million.6This amount represents principal repayments held and invested on behalf of a lender.7The interest rate payable on the borrowing from Uruguay is equal to the rate on SDR-denominated deposits less 2.6 percent a year.

190 A N N U A L R E P O R T 2 0 0 2



Schedule 4


Status of Loan Arrangementsas at April 30, 2002


Member

Armenia, Republic ofAzerbaijanBeninBoliviaBurkina FasoCambodiaCameroonCape VerdeChadCote d'Ivoire

DjiboutiEthiopiaGeorgiaGhanaGuinea

Guinea-BissauHondurasKenyaKyrgyz RepublicLao People's Democratic RepublicLesothoMadagascarMalawiMaliMauritaniaMoldova, Republic ofMongoliaMozambiqueNigerPakistan

Sao Tome and PrincipeSierra LeoneTanzaniaVietnamZambia

Date ofArrangement

May. 23, 2001Jul. 6, 2001Jul. 17, 2000Sep. 18, 1998Sep. 10, 1999Oct. 22, 1999Dec. 21, 2000Apr. 10, 2002Jan. 7, 2000Mar. 29, 2002

Oct. 18, 1999Mar. 22, 2001Jan. 12, 2001May. 3, 1999May. 2, 2001

Dec. 15, 2000Mar. 26, 1999Aug. 4, 2000Dec. 6, 2001Apr. 25, 2001Mar. 9, 2001Mar. 1, 2001Dec. 21, 2000Aug. 6, 1999Jui. 21, 1999Dec. 21, 2000Sep. 28, 2001Jun. 28, 1999Dec. 22, 2000Dec. 6, 2001

Apr. 28, 2000Sep. 26, 2001Apr. 4, 2000Apr. 13, 2001Mar. 25, 1999

ExpirationDate

May. 22, 2004Jul. 5, 2004Jul. 16, 2003Jun. 7, 2002Dec. 9, 2002Feb. 28, 2003Dec. 20, 2003Apr. 9, 2005Jan. 6, 2003Mar. 28, 2005

Oct. 17, 2002Mar. 21, 2004Jan. 11, 2004Nov. 30, 2002May. 1, 2004

Dec. 14, 2003Dec. 31, 2002Aug. 3, 2003Dec. 5, 2004Apr. 24, 2004Mar. 8, 2004Feb. 29, 2004Dec. 20, 2003Aug. 5, 2003Jul. 20, 2002Dec. 20, 2003Sep. 27, 2004Jun. 27, 2002Dec. 21, 2003Dec. 5, 2004

Apr. 27, 2003Sep. 25, 2004Apr. 3, 2003Apr. 12, 2004Mar. 28, 2003

AmountAgreed

69,00080,45027,000

100,96039,12058,500

111,4208,640

47,600292,680

19,082100,277108,000228,80064,260

14,200156,750190,00073,40031,70024,50079,43045,11051,31542,490

110,88028,49087,20059,200

1,033,700

6,657130,840135,000290,000254,450

4,201,101

UndrawnBalance

59,00064,35012,12037,0975,580

16,71563,660

7,41015,800

234,1409,995

41,71681,00052,58351,408

9,12048,450

156,40061,68022,64014,00056,73638,67019,65012,14092,40024,42025,20033,820

861,400

4,75574,66935,000

207,200149,630

2,700,554

A N N U A L R E P O R T 2 0 0 2 191


A P P E N D I X IX

Poverty Reduction and Growth Facility Administered AccountsBalance Sheets

as at Apri l 30, 2002 and 2001(In thousands of SDRs)

Austria Belgium Botswana2002 2001 2002 2001 2002 2001

AssetsInvestments (Note 3) 35,000 44,940 80,000 80,000 6,894 6,885Advance payments to the

PRGF Trust Subsidy Account 160 257 — — 116 124Interest receivable — — 20 11 — —

Total assets 35,160 45,197 80,020 80,011 7,010 7,009

Liabilities and ResourcesDeposits (Note 4) 35,000 45,000 80,000 80,000 6,894 6,894Interest payable 160 197 2 1 116 115

Total liabilities 35,160 45,197 80,002 80,001 7,010 7,009Resources . 18 10

Total Liabilities and Resources 35,160 45,197 80,020 80,011 7,010 7,009

Greece Indonesia Iran, I. R. of2002 2001 2002 2001 2002 2001

AssetsInvestments (Note 3) 14,000 20,967 25,000 25,000 5,000 4,993Advance payments to the

PRGF Trust Subsidy Account 15 48 — 324 23 29Interest receivable — — 214 186 — —

Total assets 14,015 21,015 25,214 25,510 5,023 5,022

Liabilities and ResourcesDeposits (Note 4) 14,000 21,000 25,000 25,000 5,000 5,000Interest payable 15 15 118 510 23 22

Total liabilities 14,015 21,015 25,118 25,510 5,023 5,022Resources — — 96 — — —

Total Liabilities and Resources 14,015 21,015 25,214 25,510 5,023 5,022


Portugal2002 2001

11,831 12,691

57 78

11,888

11,83157

11,888—

11,888

12,769

12,70861

12,769

12,769



192 A N N U A L R E P O R T 2 0 0 2



Poverty Reduction and Growth Facility Administered Accounts

Statements of Income and Changes in Resourcesfor the Years Ended April 30, 2002 and 2001



A N N U A L R E P O R T 2 0 0 2

Balance, beginning of the yearInvestment incomeOther expensesInterest expense on depositsNet income

Transfers to the:PRGF Trust Subsidy AccountPRGF/HIPC Trust AccountNet changes in resources


2002

—2,134

(27)(201)

1,906

(1,906)———

2001

—3,077

(34)(243)

2,800

(2,800)———

2002

102,420

(400)2,020

(2,012)—8

18

2001

2,3316,620

(749)5,871

16(8,208)(2,321)

10

2002

—358

(5)(138)215

(215)———

2001

—431

(6)(136)289

(289)——

Balance, beginning of the yearInvestment incomeOther expensesInterest expense on depositsNet incomeTransfers to the:

PRGF Trust Subsidy AccountNet changes in resources


2002—

1,052(12)(96)944

(944)——

2001361

2,143(19)

(129)1,995

(2,356)(361)

—

2002

—635

—(240)395

(299)9696

2001117

1,625—

(495)1,130

(1,247)(117)

—

2002

—259

(3)(25)231

(231)——

2001

26313

(5)(24)284

(310)(26)—

2002

—616

(8)(59)549

(549)——

2001

11794(11)(61)722

(733)(11)

——

Austria Belgium Botswana

193

Greece Indonesia Iran, I. R. of Portugal


A P P E N D I X IX

Poverty Reduction and Growth Facility Administered Accounts

Notes to the Financial Statementsas at April 30, 2002 and 2001

1. Nature of OperationsAt the request of certain member countries, the I M F estab-lished the Poverty Reduction and Growth FacilityAdministered Accounts (PRGF Administered Accounts orAdministered Accounts) for the benefit of the SubsidyAccount of the PRGF Trust. The PRGF AdministeredAccounts comprise deposits made by contributors. The dif-ference between interest earned by the AdministeredAccounts and the interest payable on deposits is transferredto the Subsidy Account of the PRGF Trust.

The Saudi Fund for Development (SFD) Special Accountwas established at the request of the SFD to provide supple-mentary financing in association with loans under the PovertyReduction and Growth Facility (PRGF). The I M F acts asagent of the SFD. Disbursements from the SFD SpecialAccount are made simultaneously with PRGF disbursements.Payments of interest and principal due to the SFD underassociated loans are to be transferred to the SFD.

The resources of each administered account are held sepa-rately from the assets of all other accounts of, or administeredby, the IMF and may not be used to discharge liabilities or tomeet losses incurred in the administration of other accounts.

2. Summary of Significant Accounting PoliciesBasis of PresentationThe financial statements of the PRGF AdministeredAccounts are prepared in accordance with InternationalAccounting Standards (IAS). Specific accounting principlesand disclosure practices are explained further below. Thepreparation of financial statements in conformity with IASrequires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclo-sure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results coulddiffer from those estimates.

In financial year 2001, IAS 39, Financial Instruments:Recognition and Measurement was adopted and had no mate-rial effect on the PRGF Administered Accounts' financialstatements.

Revenue and Expense RecognitionThe financial statements are maintained on the accrual basis;accordingly, income is recognized as it is earned, andexpenses are recorded as they are incurred.

Unit of AccountThe financial statements are expressed in terms of SDRs. Thevalue of the SDR is determined by the I M F each day by sum-ming the values in U.S. dollars, based on market exchangerates, of the currencies in the S D R valuation basket. The IMFreviews the S D R valuation basket every five years. The latestreview was completed in October 2000 and the new compo-sition of the S D R valuation basket became effective onJanuary 1, 2001. The value of the SDR in terms of U.S. dol-

lars on the last business day prior to the change (December29, 2000) was identical under both valuation baskets. Thecurrencies in the basket as of April 30, 2002 and 2001 andtheir amounts were as follows:

Currency Amount


0.42621.00.09840.577


InvestmentsThe resources of the Administered Accounts are investedpending their use. Investments are made in debt securitiesand fixed term deposits, either directly or by participation inan investment pool. Investments are marked to market onthe last business day of the accounting period. Purchases arevalued and reflected on the trade date basis and sales arebased on the actual settlement date valuations. Investmentincome comprises interest earned on investments, realizedand unrealized gains and losses on investments and currencyvaluation differences arising from exchange rate movementsagainst the SDR.

Interest rate risk is managed by limiting the investmentportfolio to a weighted-average effective duration that doesnot exceed three years. Currency risk is minimized by invest-ing in securities denominated in SDRs or in the constituentcurrencies of the SDR basket. Risk is further minimized byensuring that the currency composition of the investmentportfolio matches, as closely as possible, the currency compo-sition of the S D R basket.


Foreign Currency TranslationForeign currency transactions are recorded at the rate ofexchange on the date of the transaction. At the balance sheetdate, monetary assets and liabilities denominated in foreigncurrencies are reported using the closing exchange rates.Exchange differences arising on the settlement of transactionsat rates different from those at the originating date of thetransaction, and unrealized foreign exchange differences onunsettled foreign currency monetary assets and liabilities areincluded in the determination of net income.

Transfers to PRGF Trust Subsidy AccountThe difference between the interest earned by the PRGFAdministered Accounts on the amount invested and theinterest payable on the deposits of the Administered

194 A N N U A L R E P O R T 2 0 0 2



Accounts, net of any cost, is to be transferred to the SubsidyAccount of the PRGF Trust.

Administrative CostsThe expenses of conducting the activities of the AdministeredAccounts are incurred and borne by the General Departmentof the IMF.

3. InvestmentsThe maturities of the administered accounts' investments areas follows:

Maturity as at April 30 2002 2001in thousands of SDRs


Total

165,67412,051

177,725

107,88784,051

3,239299

195,476

At April 30, the investments consisted of the following:

2002 2001

Debt securitiesFixed-term deposits

Total

At April 30, investment income

Interest incomeRealized gains/(losses), netUnrealized (losses)/gains, net

Total

in thousands of SDRs

72,725105,000177,725

comprised:

2002

90,476105,000195,476

2001in thousands of SDRs

6,9901,802

(1,318)7,474

14,612(983)

1,37415,003

4. DepositsAustriaThe Administered Account Austria was established onDecember 27, 1988 for the administration of resourcesdeposited in the account by the Austrian National Bank. Twodeposits (one of S D R 60.0 million made on December 30,1988 and one of SDR 50.0 million made on August 10,1995) are to be repaid in ten equal semiannual installmentsbeginning five and a half years after the date of each depositand ending at the end of the tenth year after the date of eachdeposit. The deposits bear interest at a rate of 1/2 of 1 percenta year. The first deposit from Austria had been repaid in full.

BelgiumThe Administered Account Belgium was established on July 27,1988 for the administration of resources deposited in theaccount by the National Bank of Belgium. Four deposits (SDR30.0 million made on July 29, 1988; SDR 35.0 million madeon December 30, 1988; SDR 35.0 million made on June 30,1989; and SDR 80.0 million made on April 29, 1994) have aninitial maturity of six months and are renewable by the IMF, onthe same basis. The final maturity of each deposit, including

renewals, will be ten years from the initial dates of the individualdeposits. The deposits bear interest at a rate of 1/2 of 1 percent ayear. In accordance with an addendum to the account, effectiveon July 24, 1998, the maturities of the first three deposits willbe extended by the National Bank of Belgium, for further peri-ods of six months, provided that the total maturity period ofeach deposit does not exceed five years. The deposits areinvested by the IMF, and the IMF pays the National Bank ofBelgium interest on each deposit at an annual rate of 1/2 of 1percent. The difference between the interest paid to theNational Bank of Belgium and the interest earned on thedeposits (net of any cost to the IMF) was retained in theaccount and invested. As of January 31, 2001, the Ministry ofFinance of Belgium authorized a transfer of SDR 8.2 million innet earnings to the PRGF-HIPC Trust. The first three deposits,totaling SDR 100 million, were paid in full in January 2001.

BotswanaThe Administered Account Botswana was established on July1, 1994 for the administration of resources deposited in theaccount by the Bank of Botswana. The deposit, totaling SDR6.9 million, is to be repaid in one installment ten years afterthe date of deposit. The deposit bears interest at a rate of 2percent a year.

GreeceThe Administered Account Greece was established onNovember 30, 1988 for the administration of resourcesdeposited in the account by the Bank of Greece. Twodeposits of SDR 35.0 million each (December 15, 1988 andApril 29, 1994) are to be repaid in ten equal semiannualinstallments beginning five and a half years after the date ofdeposit and will be completed at the end of the tenth yearafter the date of the deposits. The deposits bear interest at arate of 1/2 of 1 percent a year. The first deposit from Greecehas been repaid in full.

IndonesiaThe Administered Account Indonesia was established on June30, 1994 for the administration of resources deposited in theaccount by the Bank Indonesia. The deposit, totaling SDR25.0 million, is to be repaid in one installment ten years afterthe date the deposit was made. The interest payable on thedeposit is equivalent to that obtained for the investment ofthe deposit less 2 percent a year.

Islamic Republic of IranThe Administered Account Islamic Republic of Iran was estab-lished on June 6, 1994 for the administration of resourcesdeposited in the account by the Central Bank of the IslamicRepublic of Iran (CBIRI). The CBIRI has made five annualdeposits, each of SDR 1.0 million. Al l of the deposits will berepaid at the end of ten years after the date of the first deposit.Each deposit bears interest at a rate of 1/2 of 1 percent a year.

PortugalThe Administered Account Portugal was established on May16, 1994 for the administration of resources deposited in theaccount by the Banco de Portugal (BdP). The BdP hasagreed to make six annual deposits, each of SDR 2.2 million.Each deposit is to be repaid in five equal annual installmentsbeginning six years after the date of the deposit and will be


A P P E N D I X IX

completed at the end of the tenth year after the date of thedeposit. Each deposit bears interest at a rate of 1/2 of 1 percenta year.

5. Associated Loans Under the SFD Special AccountThe SFD has provided additional resources to supportarrangements under the PRGF. Funds become availableunder an associated loan after a bilateral agreement betweenthe SFD and the recipient country has been effected.Amounts denominated in SDRs, for disbursement to a recipi-ent country under an associated loan, are placed by the SFDin the Saudi Fund for Development Special Account for dis-bursement by the I M F simultaneously with disbursementsunder PRGF arrangement. These loans are repayable in tenequal semiannual installments commencing not later than theend of the first six months of the sixth year, and are to becompleted at the end of the tenth year after the date of dis-bursement. Interest on the outstanding balance is currentlyset at a rate of 1/2 of 1 percent a year.

The receipts and uses of resources for the Saudi Fund forDevelopment Special Account were as follows:

2002 2001

Receipts o f ResourcesCumulative transfers from the

Saudi Fund for DevelopmentCumulative repayments of associated loansCumulative receipts of interest on associated loansAccrued interest on associated loans

Uses o f ResourcesAssociated loansCumulative repayments to the

Saudi Fund for DevelopmentCumulative payments of interest on transfersAccrued interest on transfers

In thousands of SDRs

49,50034,3001,783

2885,611

49,500

34,3001,783

2885,611

49,50026,150

1,66844

77,362

49,500

26,1501,668

4477,362

196 A N N U A L R E P O R T 2 0 0 2



PRGF-HIPC Trust and Related Accounts

Combined Balance Sheetsas at April 30, 2002 and 2001


2002 2001

AssetsCash and cash equivalentsInvestments (Note 3)Transfers receivable (Note 4)Interest receivable

Total Assets

Liabilities and ResourcesBorrowings (Note 5)Interest payable



965,867438,524

2,2361,406,627

541,7871,085

542,872863,755

1,406,627

943,652486,71912,47510,706

1,453,552

477,159860

478,019975,533

1,453,552

The accompanying notes are an integral part of these combined financial statements.



PRGF-HIPC Trust and Related Accounts

Combined Statements of Income and Changes in Resourcesfor the Years Ended April 30, 2002 and 2001


2002 2001

Balance, beginning of the yearInvestment income (Note 3)Interest expenseOther expenses

Operational incomeContributions receivedDisbursements

TransfersNet changes in resources


975,533 928,92751,266(1,925)(173)

49,16873,697

(251,532)(128,667)16,889

(111,778)863,755

64,308(1,443)(184)

62,681191,921(91,376)163,226(116,620)46,606975,533

The accompanying notes are an integral part of these combined financial statements.

A N N U A L R E P O R T 2 0 0 2 197


A P P E N D I X IX

PRGF-HIPC Trust and Related AccountsNotes to the Combined Financial Statements

as at April 30, 2002 and 2001

J. Nature of OperationsThe Trust for Special PRGF Operations for the HeavilyIndebted Poor Countries and for Interim PRGF SubsidyOperations (the PRGF-HIPC Trust) and Related Accountscomprise the PRGF-HIPC Trust Account, the UmbrellaAccount for H I P C Operations, and the Post-SCA-2 Adminis-tered Account. The PRGF-HIPC Trust Account comprisesthree subaccounts: the PRGF-HIPC, PRGF, and H I P C sub-accounts. Combining balance sheets and income statementsand changes in resources for each of these accounts are pro-vided in Note 6. Transactions between the above accounts areeliminated on combination in the combined balance sheetsand combined income statements and changes in resources.

PRGF-HIPC TrustThe PRGF-HIPC Trust, for which the IMF is trustee, wasestablished on February 4, 1997 to provide balance of paymentsassistance to low-income developing members by making grantsor loans to eligible members for the purpose of reducing theirexternal debt burden and for interim PRGF subsidy purposes.The resources of the PRGF-HIPC Trust are held separatelyfrom the assets of all other accounts of, or administered by, theIMF and may not be used to discharge liabilities or to meetlosses incurred in the administration of other accounts.

The operations of the P R G F - H I P C Trust are conductedthrough the P R G F - H I P C Trust Account and the UmbrellaAccount for H I P C Operations.

PRGF-HIPC Trust AccountThe resources of the P R G F - H I P C Trust Account consist ofgrant contributions, borrowings, and other types of invest-ments made by contributors; amounts transferred by the IMFfrom the Special Disbursement Account and the GeneralResources Account; and net earnings from investment ofresources held in the P R G F - H I P C Trust Account.

The PRGF-HIPC subaccount holds resources that canfinance either H I P C operations or interim PRGF subsidy opera-tions; the PRGF subaccount holds resources earmarked forinterim PRGF subsidy operations, while the H I P C subaccountholds resources earmarked for H I P C operations. PRGF-HIPCsubaccount resources used to finance H I P C operations throughthe H I P C subaccount are repayable to the PRGF-HIPC subac-count and bear interest at a rate equal to the average return oninvestments in the Special Disbursement Account.

The resources held in the P R G F - H I P C Trust Account areto be used by the trustee to make grants or loans to eligiblemembers that qualify for assistance under the H I P C Initiativeand for subsidizing the interest rate on interim PRGF opera-tions to PRGF-eligible members.

Umbrella Account for HIPC OperationsThe Umbrella Account for H I P C Operations (the UmbrellaAccount) receives and administers the proceeds of grants orloans made to eligible members that qualify for assistanceunder the terms of the P R G F - H I P C Trust. Within theUmbrella Account, resources received are administeredthrough the establishment of subaccounts for each eligiblemember upon the approval of disbursements under theP R G F - H I P C Trust.

The resources of a subaccount of the Umbrella Accountconsist of (1) amounts disbursed from the PRGF-HIPC TrustAccount as grants or loans for the benefit of a member, and(2) net earnings from investment of the resources held in thesubaccount.

The resources held in a subaccount of the Umbrella Accountare to be used to meet the member's debt obligations to theIMF, or accounts administered by it, in accordance with theschedule agreed upon by the trustee and the member for theuse of the proceeds of the PRGF-HIPC Trust disbursements.

Post-SCA-2 Administered AccountThe Post-SCA-2 Administered Account, which is adminis-tered by the I M F on behalf of members, was established onDecember 8, 1999 for the temporary administration ofresources transferred by members following the terminationof the second Special Contingent Account (SCA-2), prior tothe final disposition of those resources.

Resources received from a member's cumulative SCA-2contributions, together with the member's pro rata share ofinvestment returns, shall be transferred to the PRGF-HIPCTrust or to the member, in accordance with the member'sinstructions. The assets held in the Post-SCA-2 AdministeredAccount are held separately from the assets and property of allother accounts of, or administered by, the IMF and may notbe used to discharge liabilities or to meet losses incurred inthe administration of other accounts.

2. Summary of Significant Accounting PoliciesBasis of PresentationThe financial statements of the I M F are prepared in accor-dance with International Accounting Standards (IAS).Specific accounting principles and disclosure practices areexplained further below. The preparation of financial state-ments in conformity with IAS requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenue and expenses during the report-ing period. Actual results could differ from those estimates.

In financial year 2001, IAS 39, Financial Instruments:Recognition and Measurement was adopted and had no mater-ial effect on the PRGF-HIPC Trust and Related Accounts'financial statements.

Revenue and Expense RecognitionThe financial statements are prepared on the accrual basis;accordingly, income is recognized as it is earned, andexpenses are recorded as they are incurred.

Unit of AccountThe financial statements are expressed in terms of SDRs. Thevalue of the SDR is determined by the IMF each day by sum-ming the values in U.S. dollars, based on market exchangerates, of the currencies in the SDR valuation basket. The IMFreviews the SDR valuation basket every five years. The latestreview was completed in October 2000 and the new compo-sition of the S D R valuation basket became effective fromJanuary 1, 2001. The value of the SDR in terms of U.S. dol-

198 A N N U A L R E P O R T 2 0 0 2



lars on the last business day prior to the change (December29, 2000) was identical under both valuation baskets. Thecurrencies in the basket as of April 30, 2002 and 2001 andtheir amounts were as follows:

Currency AmountEuroJapanese yenPound sterlingU.S. dollar

0.42621.00.09840.577

As of April 30, 2002, one S D R was equal to 1.26771 U.S.dollars (one SDR was equal to 1.26579 U.S. dollars as ofApril 30, 2001).

Cash and Cash EquivalentsCash and cash equivalents include short-term deposits with amaturity of less than ninety days. These deposits are denomi-nated in SDRs or other currencies and are carried at cost notexceeding market value. Interest received on these instru-ments varies and is based on prevailing market rates.

InvestmentsThe resources of the Trust are invested pending their use.The Trust invests in debt securities and fixed-term deposits,either directly or by participation in an investment pool.Investments are marked to market on the last business day ofthe accounting period. Purchases are valued and reflected onthe trade date basis and sales are based on the actual settle-ment date valuations. Investment income comprises interestearned on investments, realized and unrealized gains andlosses on investments, and currency valuation differences aris-ing from exchange rate movements against the SDR.

Interest rate risk is managed by limiting the investmentportfolio to a weighted-average effective duration that doesnot exceed three years. Currency risk is minimized by invest-ing in securities denominated in SDRs or in the constituentcurrencies of the SDR basket. Regular portfolio rebalancingto ensure that the currency composition of the investmentportfolio matches, as closely as possible, the currency compo-sition of the SDR basket, further minimizes risk.

ContributionsBilateral contributions are reflected as increases in resources afterthe achievement of specified conditions and are subject to bilat-eral agreements stipulating how the resources are to be used.


Foreign Currency TranslationForeign currency transactions are recorded at the rate ofexchange on the date of the transaction. At the balance sheetdate, monetary assets and liabilities denominated in foreigncurrencies are reported using the closing exchange rates.Exchange differences arising on the settlement of transactionsat rates different from those at the originating date of thetransaction and unrealized foreign exchange differences onunsettled foreign currency monetary assets and liabilities areincluded in the determination of net income.

Administrative CostsThe expenses of conducting activities of the Trust and relatedaccounts are incurred and borne by the General Departmentof the IMF.

3. InvestmentsThe maturities of the investments in debt securities andfixed-term deposits are as follows:

Maturity as at April 30 2002 2001


Total

In thousands of SDRs247,851229,222

8,832814

486,719

376,81761,707

438,524

At April 30, the investments consisted of the following:2002 2001In thousands of SDRs

Debt securitiesFixed-term deposits

Total

225,352213,172438,524

241,310245,409486,719

At April 30, investment income is comprised of:2002 2001In thousands of SDRs

Interest incomeRealized gains/(losses), netUnrealized (losses)/gains, netExchange rate gains/(losses), net

Total

49,7144,677

(3,152)27

51,266

62,768(1,759)3,411(112)

64,308

4. Transfers Receivable and PayableAt April 30, 2002, the H I P C subaccount had transferspayable to the PRGF-HIPC subaccount arising from past dis-bursements to the Umbrella Account under the H I P CInitiative in the amount of SDR 437.0 million, includinginterest (SDR 214.2 million at April 30, 2001). Interestpayable between subaccounts is eliminated on combination.At April 30, 2002, there was no transfer due from the SpecialDisbursement Account (SDR 12.5 million at April 30, 2001).

5. BorrowingsThe Trust borrows on such terms and conditions as agreedbetween the Trust and the lenders. Interest rates on borrow-ings at 2002 and 2001 varied between 0 percent and 2percent a year. The principal amounts of the borrowings arerepayable in one installment at their maturity dates. Sched-uled repayments of borrowings are summarized below:

Financial YearEnding April 30

20032004200520062007

2008 and beyondTotal

In thousands of SDRs——

15,000—

310526,477541,787

Borrowings during the financial year ended April 30,2002 amounted to SDR 150 million (SDR 76 million for thefinancial year ended April 30, 2001). Repayments amountedto S D R 15 million for the year ended April 30, 2002 (nonein the year ended April 30, 2001). Borrowings include for-eign currency amounts.

A N N U A L R E P O R T 2 0 0 2 199


AP

PE

ND

IX IX

200 A

NN

UA

L R

EP

OR

T

20

02

6. Combining Balance Sheets and Statements of Income and Changes in ResourcesThe balance sheets and statements of income and changes in resources for each of the accounts and subaccounts in the PRGF-HIPC Trust and Related Accounts are presented below:

Combining Balance Sheetsas at Apri l 30, 2002 and 2001

(In thousands ofSDRs)

2002 2001

AssetsCash and cash equivalentsInvestmentsTransfers receivableTransfers to and from subaccountsInterest receivable

Total Assets

Liabilities and ResourcesBorrowingsInterest payable



PRGF-HIPC Trust Accountsubaccount

PRGF-HIPC

576,105433,614

437,001914

1,447,634

541,7871,085

542,872904,762

1,447,634

PRGF

9,6514,910

3014,591

—

—14,59114,591

HIPC

(437,001)

(437,001)

—

—(437,001)(437,001)

Combined

585,756438,524

9441,025,224

541,7871,085

542,872482,352

1,025,224

UmbrellaAccount

for HIPCOperations

330,115

1,013331,128

—

—331,128331,128

Post-SCA-2Administered

Account

49,996

27950,275

—

—50,27550,275

CombinedTotal

965,867438,524

2,2361,406,627

541,7871,085

542,872863,755

1,406,627

PRGF-HIPCTrust

Account

547,159451,676

12,475

5,5141,016,824

477,159860

478,019538,805

1,016,824

UmbrellaAccount

for HIPCOperations

304,35635,043

4,011343,410

—

—343,410343,410


Account

92,137

1,18193,318

—

—93,31893,318

CombinedTotal

943,652486,719

12,475

10,7061,453,552

477,159860

478,019975,533

1,453,552


Note 6 (concluded)and Changes in Resources

30, 2002 and 2001(In thousands ofSDRs)

2002 2001

Balance, beginning of the yearInvestment income1

Interest expense1

Other expensesOperational income/(loss)

Contributions receivedGrantsDisbursements

TransfersNet changes in resources


PRGF-HIPC Trust Accountsubaccount

PRGF-HIPC

735,08956,734(1,925)

(166)54,64353,430

108,07361,600

169,673904,762

PRGF14,003

593

(5)588

588

58814,591

HIPC(210,287)

49(17,466)

(2)(17,419)20,267

(229,562)

(226,714)

(226,714)(437,001)

Combined

538,80539,910(1,925)

(173)37,81273,697

(229,562)

(118,053)61,600

(56,453)482,352

UmbrellaAccount

for HIPCOperations

343,4109,688

9,688

229,562(251,532)(12,282)

(12,282)331,128


Account

93,3181,668

1,668

1,668(44,711)(43,043)50,275

CombinedTotal

975,53351,266(1,925)

(173)49,16873,697

(251,532)(128,667)

16,889(111,778)863,755

PRGF-HIPCTrust

Account

511,05145,268(1,443)

(184)43,641

191,921(262,808)

(27,246)55,00027,754

538,805

UmbrellaAccount

for HIPCOperations

160,82511,153

11,153

262,808(91,376)182,585

182,585343,410


Account

257,0517,887

7,887

7,887(171,620)(163,733)

93,318

CombinedTotal

928,92764,308(1,443)

(184)62,681

191,921

(91,376)163,226

(116,620)46,606

975,533

AN

NU

AL

RE

PO

RT

2

00

2 201

FIN

AN

CIA

L S

TA

TE

ME

NT

S

Combining Statements of Incometor trie xCcirs x^nded Apri l

1 Interest payable between subaccounts amounting to SDR 17.5 million (SDR 13.5 million at April 30, 2001) has been eliminated in the combined totals.


A P P E N D I X IX

Schedule 1

Post-SCA-2 Administered Account

Holdings, Interest and Transfersas at April 30, 2002


Member

AlgeriaArgentinaBrazilBrunei DarussalamColombia

Croatia, Republic ofDominican RepublicEstonia, Republic ofFijiFinland

GabonJordanLatvia, Republic ofMalaysiaOman

Saudi ArabiaSingaporeSwedenThailandTonga

Trinidad & TobagoTunisiaUnited Arab EmiratesVanuatuVenezuelaTotal

BalanceBeginningof the Year

41220,79410,598

55—

31957146206322

4581,087

177,8211,123

978249

11,254350

27

2,334136

5,45046

28,46793,318

InterestEarned

150300

112

—2746

——30—24

7—

—188

—1

66—46

2804

1,668

Transfersfrom Member

———

1,182—————————

——

——

————

1,182

Transfersto Member

———

——————

——(2)——

———

————(2)

Transfers toPRGF-HIPC

Trust

(412)(15,628)

—(56)

(1,194)

(31)—

(149)—

(322)

(458)—

(15)(7,845)(1,130)

(978)(249)

(11,442)(350)

——

(136)(5,496)

——

(45,891)

Balance Endof the Year

—5,316

10,898——

—984

1212

——

1,117———

——

—-28

2,400——48

29,27150,275

202 A N N U A L R E P O R T 2 0 0 2



Schedule 2

PRGF-HIPC Trust Account

Contributions and Transfersfor the Years Ended April 30, 2002 and 2001


PRGF-HIPCYear ended April 30, 2001Australia —Austria —Belgium 12,208Belize 20Denmark 2,374

Egypt 37France 17,196Iceland 366India 390Indonesia 124

Italy 43,309Japan 16,356Kuwait 108Latvia, Republic of 269Mexico 8,000

Morocco 49Netherlands —New Zealand 1,158Norway 1,144Pakistan 105

Poland, Republic of 877Russian Federation 10,200South Africa 4,000Spain 16,550Sri Lanka 12

Switzerland 3,184United Kingdom —Vietnam 10

138,046Transfers from SDA 55,000

193,046

Subaccount

PRGF

——

—

—————

—————

6,147

——

————

——

6,147—

6,147

HIPC

3,9109,981

———

——————————

————

————

33,837—

47,728—

47,728

Combined

3,9109,981

12,20820

2,374

3717,196

366390124

43,30916,356

108269

8,000

496,1471,1581,144

105

87710,2004,000

16,55012

3,18433,837

10191,92155,000

246,921

A N N U A L R E P O R T 2 0 0 2 203


A P P E N D I X IX



Contributions and Transfersfor the Years Ended April 30, 2002 and 2001


Tear ended April 30, 2002AlgeriaAustraliaBelgiumBelizeBrunei Darussalam

ColombiaCroatia, Republic ofDenmarkEstonia, Republic ofFinland

GabonIcelandJapanLatvia, Republic ofMalaysia

MexicoNetherlandsNigeriaNorwayOman

Poland, Republic ofSt. Vincent and the GrenadinesSaudi ArabiaSingaporeSouth Africa

SwedenSwitzerlandThailandTunisiaUnited Arab Emirates

Transfers from SDA

PRGF-HIPC

412—

2,62120

4

1331

2,386372322

458184

15,441157478

7,982—

4,3142,302

73

1,23422

978249

4,000

5,3223,216

350136353

53,43061,600

115,030

Subaccount

PRGF

—————

—

———

——

—

——

—_——

——

———

——

———

———

HIPC

—3,920

_——

—

——

——

———

—16,347!

———

————

—.—

20,267—

20,267

Combined

4123,9202,621

204

1331

2,386372322

458184

15,441157478

7,98216,3474,3142,302

73

1,23422

978249

4,000

5,3223,216

350136353

73,69761,600

135,297

1Represents an additional grant contribution by the Netherlands to Zambia in the context of the HIPC Initiative.

204 A N N U A L R E P O R T 2 0 0 2



Umbrella Account for H I P C Operations

Grants, Interest and Disbursementsfor the Years Ended April 30, 2002 and 2001


Schedule 3

Year ended April 30, 2001BeninBoliviaBurkina FasoCameroonGambia, TheGuineaGuinea-BissauGuyanaMadagascarMalawiMaliMauritaniaMozambiqueNigerRwandaSenegalTanzaniaUgandaZambia

Tear ended April 30, 2002BeninBoliviaBurkina FasoCameroonChadEthiopiaGambia, TheGhanaGuineaGuinea-BissauGuyanaHondurasMadagascarMalawiMaliMauritaniaMozambiqueNigerRwandaSenegalSierra LeoneTanzaniaUgandaZambia

BalanceBeginningof the Year

—7,906

———

—18,862

——

—83,423

—

13,37537,259

—160,825

8022,584

14,696431

——

72—

2,235391

18,640—6

1,14410,2385,009

63,732437

3,7083,115

13,42083,374

119,376343,410

Grants fromPRGF-HIPC

Trust Account

3,700—

17,8002,240

80

2,424541

6,140677

2,31411,4909,922

—430

6,7624,777

13,34062,971

117,200262,808

3,68044,23415,240

2902,8504,036

—9,913

———

4,5001,446

—5,7466,960

12,5191,0792,3673,387

23,64069,715

1,58516,3751

229,562

InterestEarned

77217614

281

398

8896

33

33475

3,2857

95

47314

2,9082,176

11,153

501,090

4561557

332

3630

7

465461322

358

1171,864

157944

37809

2,2871,7569,688

Disbursements

2,9755,5393,7181,837

9

228158

7,251677

1,2031,5864,988

22,976—

3,1491,709

13,60919,764

—91,376

3,8398,8514,644

—2,0672,212

9—

2,238393

6,8572,250

—1,1436,9997,640

17,339430

5,8453,1329,818

13,33218,607

133,887251,532

Balance Endof the Year

8022,584

14,696431

72

2,235391

18,6406

1,14410,2385,009

63,732437

3,7083,115

13,42083,374

119,376343,410

69339,05725,748

736840

1,85765

9,94927

5

12,2482,2961,465

239,3434,446

60,7761,101

3093,414

13,85970,61268,6393,620

331,128

1Includes an additional grant contribution by the Netherlands to Zambia in the context of the HIPC Initiative.

A N N U A L R E P O R T 2 0 0 2 205


A P P E N D I X IX

Schedule 4


Cumulative Contributions and Transfersas at April 30, 2002

(In thousands ofSDRs)

Subaccount

PRGF-HIPC PRGF HIPC

17,0199,981

——

——

——

—

— •

• — •

—

—

— • . ' . ; • • ' •

— ' . : v • . .

—

_ . • • • " ' • .

— • •• •• • " • ,

—

—

—

—

—

—• :.R •.—

16,347!

Oombined

41217,0199,9811,163

250

14,829804

2732,929

13,1321331

54410,880

37372

2,58355,892

458

2,200643390124

3,937

1,18943,309

1,80098,35510,625

108426488478706

4015,982

4929,439

1,158

AlgeriaAustraliaAustriaBangladeshBarbados

BelgiumBelizeBrunei DarussalamCambodiaCanada

ChinaColombiaCroatia, Republic ofCyprusDenmark

EgyptEstonia, Republic ofFinlandFranceGabon

GreeceIcelandIndiaIndonesiaIreland

IsraelItalyJamaicaJapanKorea

KuwaitLatvia, Republic ofLuxembourgMalaysiaMalta

MauritiusMexicoMoroccoNetherlandsNew Zealand

412

1,163250

14,82980

427

32,929

13,1321331

54410,880

37372

2,58355,892

458

2,200643390124

3,937

1,18943,309

1,80098,35510,625

108426488478706

4015,982

49

1,15813,092

06 A N N U A L R E P O R T 2 0 0 2





Cumulative Contributions and Transfersas at April 30, 2002

NigeriaNorwayOmanPakistanPhilippines

Poland, Republic ofPortugalRussian FederationSt. Vincent and the GrenadinesSamoa

San Marino, Republic ofSaudi ArabiaSingaporeSlovak RepublicSlovenia, Republic of

South AfricaSpainSri LankaSwazilandSweden

SwitzerlandThailandTunisiaUnited Arab EmiratesUnited Kingdom

United StatesVietnam

Transfers from SDATransfers from GRA


PRGF-HIPC

5,41610,698

73105

4,500

2,1124,430

10,20022

3

32978249

2,669311

8,89516,550

1220

5,322

6,400350136353

23,551

—10

419,040287,997

72,456360,453779,493

Subaccount

PRGF

————

——

—

—

—

———

————

13,092—

—13,092

HIPC

————

——

——

—

—

——

—

——

33,837

221,932—

299,116———

299,116

Combined

5,41610,698

73105

4,500

2,1124,430

10,20022

3

32978249

2,669311

8,89516,550

1220

5,322

6,400350136353

57,388

221,93210

731,248287,997

72,456360,453

1,091,701

1Represents an international grant contribution by the Netherlands to Zambia in the context of the HIPC Initiative.

A N N U A L R E P O R T 2 0 0 2 207


AP

PE

ND

IX IX

208 A

NN

UA

L R

EP

OR

T

20

02

AdministeredAccount Japan

2002 2001

Other Administered Accounts

Balance Sheetsas at April 30, 2002 and 2001

AdministeredAccount for

Selected FundActivities—Japan

2002 2001

FrameworkAdministered

Accountfor Technical

AssistanceActivities

2002 2001

AdministeredAccount—

Spain2002 2001


Rwanda1

2001

SupplementaryFinancing Facility

The Post-ConflictEmergencyAssistance

Subsidy Account Subsidy Account2

2002 2001 2002

AssetsCash and cash equivalentsInterest receivable

Total Assets

ResourcesTotal Resources

-(In thousands of U.S. dollars) -

117,277 114,184 20,459 14,580 8,484 4,539

117,277 114,184 20,459 14,580 8,484 4,539

117,277 114,184 20,459 14,580 8,484 4,539

-(In thousands ofSDRs)-

2,29013

2,303

2,303

2,31924

2,343

2,343

587

587

587

The accompanying notes are an integral part of these financial statements.JThe Administered Account for Rwanda was terminated on November 30, 2000.2The Post-Conflict Emergency Assistance Account for PRGF-eligible members was established on May 4, 2001.





2002 2001

Statements of Income and Changes in Resourcesfor the Years Ended April 30, 2002 and 2001


Selected FundActivities—Japan

2002 2001

FrameworkAdministered

Accountfor Technical

AssistanceActivities

2002 2001

AdministeredAccount—

Spain2002 2001


Rwanda1

2001

SupplementaryFinancing FacilitySubsidy Account2002 2001

The Post-ConflictEmergencyAssistance

Subsidy Account2

2002

Balance, beginning of the yearIncome earned on investmentsContributions receivedPayments to and on behalf

of beneficiariesNet incomeTransfers to the Special

Disbursement Account (Note 4)Net changes in resources


114,184 107,4393,093 6,745

3,093 6,745

(In thousands of US, dollars)

14,580 18,854

29824,965

(19,384)

5,879

3,093 6,745 5,879

117,277 114,184 20,459

71815,119

(20,111)

(4,274)

(4,274)

14,580

4,539129

8,411

(4,595)

3,945

3,945

8,484

4,201257

3,882

(3,801)

338

338

4,539

329

(329

33,154

,187)

—

—

72506,329

506,401

—

—

291

6

(297)

(291)

(291)

-(In thousands ofSDRs)-

2,343 2,343

63

63

(103)

(40)

2,303

104

104

(104)—

2,343

1,360

(773)

587

587

587

AN

NU

AL

RE

PO

RT

2

00

2 209

The accompanying notes are an integral part of these financial statements.1The Administered Account for Rwanda was terminated on November 30,2000.2The Post-Conflkt Emergency Assistance Account for PRGF-eligibie members was established on May 4, 2001.

FIN

AN

CIA

L S

TA

TE

ME

NT

S

Other Administratered Accounts


A P P E N D I X IX

Other Administered Accountsents

as at April 30,2002 and 2001

7. Nature of OperationsAt the request of members, the IMF has established special pur-pose accounts to administer contributed resources and toperform financial and technical services consistent with the pur-poses of the IMF. The assets of each account and eachsubaccount are separate from the assets of all other accounts of,or administered by, the IMF and are not to be used to dischargeliabilities or to meet losses incurred in the administration ofother accounts.

Administered Account JapanAt the request of Japan, the IMF established an account onMarch 3, 1989 to administer resources, made available byJapan or other countries with Japan's concurrence, that are tobe used to assist certain members with overdue obligations tothe IMF. The resources of the account are to be disbursed inamounts specified by Japan and to members designated byJapan.

Administered Account for Selected FundActivities—JapanAt the request of Japan, the IMF established the Adminis-tered Technical Assistance Account—Japan on March 19,1990 to administer resources contributed by Japan to financetechnical assistance to member countries. On July 21, 1997,the account was renamed the Administered Account forSelected Fund Activities—Japan and amended to include theadministration of resources contributed by Japan in supportof the IMF's Regional Office for Asia and the Pacific (OAP).The resources of the account designated for technical assis-tance activities are used with the approval of Japan andinclude the provision of scholarships. The resources desig-nated for the OAP are used as agreed between Japan and theIMF for certain activities of the IMF with respect to Asia andthe Pacific through the OAP. Disbursements can also bemade from the account to the General Resources Account toreimburse the IMF for qualifying technical assistance projectsand OAP expenses.

The Framework Administered Account for Technical Assis-tance Activities ("the Framework Account") was establishedby the IMF on April 3, 1995 to receive and administer con-tributed resources that are to be used to finance technicalassistance consistent with the purposes of the IMF. Thefinancing of technical assistance activities is implementedthrough the establishment and operation of subaccountswithin the Framework Account.

Resources are to be used in accordance with the writtenunderstandings between the contributor and the ManagingDirector. Disbursements can also be made from the Frame-work Account to the General Resources Account toreimburse the IMF for its costs incurred on behalf of techni-cal assistance activities financed by resources from theFramework Account.

Subaccount for Japan Advanced Scholarship ProgramAt the request of Japan, this subaccount was established onJune 6, 1995 to finance the cost of studies and training ofnationals of member countries in macroeconomics andrelated subjects at selected universities and institutions. Thescholarship program focuses primarily on the training ofnationals of Asian member countries, including Japan.

Rwanda—Macroeconomic Management Capacity SubaccountAt the request of Rwanda, this subaccount was established onDecember 20, 1995 to finance technical assistance to rehabil-itate and strengthen Rwanda's macroeconomic managementcapacity.

Australia—IMF Scholarship Program for Asia SubaccountAt the request of Australia, this subaccount was establishedon June 5, 1996 to finance the cost of studies and training ofgovernment and central bank officials in macroeconomicmanagement so as to enable them to contribute to theircountries' achievement of sustainable economic growth anddevelopment. The program focuses primarily on the trainingof nationals of Asian countries.

Switzerland "technical Assistance SubaccountAt the request of Switzerland, this subaccount was establishedon August 27, 1996 to finance the costs of technical assis-tance activities of the IMF that consist of policy advice andtraining in macroeconomic management.

French Technical Assistance SubaccountAt the request of France, this subaccount was established onSeptember 30, 1996 to cofinance the costs of training in eco-nomic fields for nationals of certain member countries.

Denmark Technical Assistance SubaccountAt the request of Denmark, this subaccount was establishedon August 25,1998 to finaiice the costs of technical assis-tance activities of the IMF that consist of advising on policyand administrative reforms in the fiscal, monetary, and relatedstatistical fields.

Australia Technical Assistance SubaccountAt the request of Australia, this subaccount was establishedon March 7, 2000 to finance the costs of technical assistanceactivities of the IMF that consist of advising on the design ofpolicy and administrative reforms in the fiscal, monetary andrelated statistical fields, as well as to provide training in theformulation and implementation of macroeconomic andfinancial policies.

The Netherlands Technical Assistance SubaccountAt the request of the Netherlands, this subaccount was estab-lished oil July 27, 2000 to finance projects that seek toenhance the capacity of the members to formulate and imple-ment policies in the macroeconomic, fiscal, monetary,financial^ and related statistical fields, including training pro-

210 A N N U A L R E P O R T 2 0 0 2

'>:-h:^-, 'X:; '^••'- !fr;'i:,W'rr~[- 7; :'

Frajffshfhfhfhyrhjhihfsdfhahfhsfshfshfshfjshfshfhhfhfhsajfhfsjfksfhsfsjfhhfhfasf



grams and projects that strengthen the legal and administra-tive framework in these core areas.

The United Kingdom Department for internationalDevelopment (DFID) Technical Assistance SubaccountAt the request of the United Kingdom, this subaccount wasestablished on June 22, 2001 to finance projects that seek toenhance the capacity of the members to formulate and imple-ment policies in the macroeconomic, fiscal, monetary,financial, and related statistical fields, including training pro-grams and projects that strengthen the legal andadministrative framework in these core areas.

At the request of Italy, this subaccount was established onNovember 16, 2001 to finance projects that seek to enhancethe capacity of certain members to formulate and implementpolicies related to fiscal, financial, and statistical standards andcodes, including training programs and projects thatstrengthen the legal and administrative framework in thesecore areas.

Administered Account— SpainAt the request of Spain, the IMF established an account onMarch 20, 2001 to receive and disburse resources up to $1billion contributed by Spain for Argentina. The resources ofthis account are to be used to assist Argentina in the imple-mentation of the adjustment program supported by the IMFunder the Stand-By Arrangement for Argentina approved onMarch 10, 2000 and augmented on January 12, 2001.

At the request of the Netherlands, Sweden, and the UnitedStates ("the donor countries"), the I M F established anaccount on October 27, 1995 to administer resources con-tributed by the donor countries to provide grants to Rwanda.These grants are to be used for reimbursing the service chargeand reducing, to the equivalent of a rate of 1/2 of 1 percent ayear, the rate of the quarterly charges payable by Rwanda onits use of the IMF's financial resources under the Compen-satory and Contingency Financing Facility (CCFF). Theaccount was terminated on November 30, 2000 and the bal-ance transferred to donor countries, in proportion to theircontributions. The distribution of the final accrued interestwas made in February 2001 when quarterly interest on S D Raccounts was paid.

Supplementary Financing Facility Subsidy AccountThe Supplementary Financing Facility Subsidy Account ("theSubsidy Account"), which is administered by the IMF, wasestablished in December 1980 to assist low-income develop-ing country members to meet the cost of using resourcesmade available through the IMF's Supplementary FinancingFacility and under the policy on exceptional use. A l l repur-chases due under these policies were scheduled for completionby January 31, 1991, and the final subsidy payments wereapproved in July 1991. However, two members (Liberia andSudan), overdue in the payment of charges, remain eligible toreceive previously approved subsidy payments when their over-due charges are settled. Accordingly, the account remains inoperation and has retained amounts for payment to thesemembers after the overdue charges are paid.

The Post-Conflict Emergency Assistance SubsidyAccountThe Post-Conflict Emergency Assistance Subsidy Account forPRGF-eligible members was established in May 2001 toadminister contributed resources for the purpose of providingassistance to PRGF-eligible members in support of theiradjustment efforts. Contributions to the account will be usedto provide grants to PRGF-eligible members that have madepost-conflict emergency assistance purchases under the IMFGeneral Resources Account, effectively subsidizing the basicrate of charge on these purchases to 0.5 percent per annum.The Subsidy to each eligible member would be prorated ifresources are insufficient to reduce the basic rate of charge to0.5 percent.

Trust FundIn addition to the aforementioned accounts, the I M F is alsothe trustee of the Trust Fund, which is in liquidation. TheTrust Fund was established in 1976 to provide balance ofpayments assistance on concessional terms to eligible mem-bers that qualify for assistance.

In 1980, the IMF, as trustee, decided that, upon the com-pletion of the final loan disbursements, the Trust Fund wouldbe terminated as of April 30, 1981, and after that date, theactivities of the Trust Fund have been confined to the conclu-sion of its affairs. As of April 30, 2002 and 2001, the TrustFund had overdue loans receivable of SDR 88.6 million andSDR 88.8 million, respectively. Member resources exist in theTrust Fund to the full amount of the loans and are availableto absorb any losses should this occur. A l l interest is deferred.Cash receipts on these loans are to be transferred to the Spe-cial Disbursement Account.

Overdue loans, interest and charges at Apri l 30, 2002were as follows:

Member

LiberiaSomaliaSudan

Total

Loans

22.96.5

59.288.6

Interestand Special

ChargesIn millions of SDRs

7.11.4

19.127.6

Total

30.07.9

78.3116.2

Longest OverdueObligation

June 1985July 1987June 1985

2. Summary of Significant Accounting Policies

Basis of PresentationThe financial statements of the Other Administered Accountsare prepared in accordance with International AccountingStandards (IAS). Specific accounting principles and disclosurepractices are explained further below. The preparation offinancial statements in conformity with IAS requires manage-ment to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue andexpenses during the reporting period. Actual results coulddiffer from those estimates.

In financial year 2001, IAS 39, Financial Instruments:Recognition and Measurement was adopted and had no mate-rial effect on the Other Administered Accounts' financialstatements.

A N N U A L R E P O R T 2 0 0 2 211

Italy Technical Assistance Subaccount

Administered Account for Rwanda


A P P E N D I X IX

Unit of Account

Administered Account Japan, Administered Account forSelected Fund Activities—Japan, Framework Administer redAccount for Technical Assistance Activities,and Administered Account—SpainThese accounts are expressed in U.S. dollars. All transactionsand operations of these accounts, including the transfers toand from the accounts, are denominated in U.S. dollars,except for transactions and operations in respect of the OAP,which are denominated in Japanese yen, or transactions inother currencies as agreed between Japan and the IMF. Con-tributions denominated in other currencies are converted intoU.S. dollars upon receipt of the funds.

The Post-Conflict Emergency Assistance Subsidy Account,Administered Account for Rwanda, Trust Fund, andSupplementary Financing Facility Subsidy AccountThese accounts are expressed in terms of SDRs. The valueof the SDR is determined by the IMF each day by sum-ming the values in U.S. dollars, based on market exchangerates, of the currencies in the basket. The IMF reviews theSDR valuation basket every five years. The latest review wascompleted in October 2000 and the composition of theSDR valuation basket became effective from January 1,2001. The value of the SDR in terms of U.S. dollars on thelast business day prior to the change (December 29, 2000)was identical under both valuation baskets. The method ofvaluing the SDR has been revised following the introduc-tion of the euro as the common currency of a number ofmembers. The currencies in the basket as of April 30, 2002and 2001 and their amounts were as follows:

Currency Amount


0.42621.0

0.09840.577


Transactions and operations of the accounts are denomi-nated in SDRs. Contributions denominated in other currenciesare converted into SDRs upon receipt of the funds.

Revenue and Expense RecognitionThe accounts are maintained on the accrual basis; accord-ingly, income is recognized as it is earned and expenses arerecorded as they are incurred.

Cash and Cash EquivalentsCash and cash equivalents include short-term deposits with amaturity of less than ninety days. These deposits are denomi-nated in SDRs or other currencies and are carried at cost notexceeding market value. Interest on these instruments variesand is based on prevailing market rates.

ContributionsBilateral contributions are reflected as increases in resources afterthe achievement of specified conditions and are subject to bilat-eral agreements stipulating how the resources are to be used.

Payments to and on behalf of beneficiariesPayments to and on behalf of beneficiaries are recognizedwhen the specified conditions in the respective agreementsare achieved.


Foreign Currency TranslationForeign currency transactions are recorded at the rate ofexchange on the date of the transaction. At the balancesheet date, monetary assets and liabilities denominated inforeign currencies are reported using the closing exchangerates. Exchange differences arising on the settlement oftransaction at rates different from those at the date of thetransaction and unrealized foreign exchange differences onunsettled foreign currency monetary assets and liabilitiesare included in the determination of net income.

Administrative ExpensesThe expenses of conducting the activities of the Other Admin-istered Accounts and the Trust Fund are incurred and borne bythe General Department of the IMF. To help defray theexpenses incurred by the Fund in the administration of theAdministered Account for Selected Fund Activities—Japan andthe Framework Administered Account for Technical AssistanceActivities, reimbursement equal to 13 percent of the expensesfinanced from the accounts is paid to the IMF from theseaccounts. The Administered Account—Spain pays the IMF anannual fee of $40,000 for administrative costs incurred. As atApril 30, 2002 the administrative costs for AdministeredAccount for Selected Fund Activities—Japan amounted to $2.1million ($2.1 million at April 30, 2001), and for FrameworkAdministered Account for Technical Assistance Activities $0.53million ($0.48 million at April 30, 2001). These amounts areincluded in Payments to and on behalf of beneficiaries on theIncome Statements and Changes in Resources.

212 A N N U A L R E P O R T 2 0 0



3. Cumulative Contributions and DisbursementsThe cumulative contributions to and disbursements from theOther Administered Accounts are as follows:

April 30, 2002Cumulative

Account Contributions


Administered Accountfor Selected FundActivities—Japan

Technical AssistanceScholarshipsOffice of Asia and Pacific

Framework AdministeredAccount for TechnicalAssistance Activities

Subaccount for JapanAdvanced ScholarshipProgram

Rwanda—MacroeconomicManagement CapacitySubaccount

Australia—IMF ScholarshipProgram for AsiaSubaccount

Switzerland TechnicalAssistance Subaccount

French TechnicalAssistance Subaccount

Denmark TechnicalAssistance Subaccount

Australia TechnicalAssistance Subaccount

The Netherlands TechnicalAssistance Subaccount

135.2

178.5162.8

10.35.4

27.3

8.7

1.5

2.0

8.3

0.7

0.5

0.3

1.8The United Kingdom D F I D

Technical AssistanceSubaccount

Italy TechnicalAssistance Subaccount

Administered Account—Spain

Administered Accountfor Rwanda

The Post-Conflict EmergencyAssistance Subsidy Account

1.71.8

835.5

—

1.4

CumulativeDisbursements 1

April 30,Cumulative

2001Cumulative

Contributions Disbursements1

(In millions of U.S. dollars)

72.5

165.1150.5

9.35.3

20.0

7.2

1.6

1.9

6.6

0.5

0.5

—

1.1

0.6

—

835.6

135.2

153.6141.2

8.04.4

18.9

7.2

1.5

1.4

6.8

0.7

0.5

0.3

0.6

—

506.3

(In millions of SDRs)

—

0.8

1.5

—

72.5

145.8134.2

7.34.3

15.3

5.8

1.6

1.4

5.3

0.4

0.5

0.0

0.4—

—

—

506.4

1.7

—1Disbursements had been made from resources contributed to these accounts as well as frominterest earned on these resources.

4. Transfer of ResourcesResources of the Supplementary Financing Facility SubsidyAccount in excess of the remaining subsidy payments are tobe transferred to the Special Disbursement Account. At April30, 2002 and 2001, subsidy payments totaling S D R 2.2 mil-

lion had not been made to Liberia and Sudan and werebeing held pending the payment of overdue charges by thesemembers.

5. Accounts TerminationAdministered Account JapanThe account can be terminated by the IMF or by Japan. Anyremaining resources in the account at termination are to bereturned to Japan.

Administered Account for Selected Fund Activities—JapanThe account can be terminated by the IMF or by Japan. Anyresources that may remain in the account at termination, netof accrued liabilities under technical assistance projects or inrespect of the OAP, are to be returned to Japan.

Framework Administered Account for Technical AssistanceActivitiesThe Framework Account or any subaccount thereof maybe terminated by the I M F at any time. The terminationof the Framework Account shall terminate each subaccountthereof. A subaccount may also be terminated by thecontributor of the resources to the subaccount. Terminationshall be effective on the date that the I M F or thecontributor, as the case may be, receives notice of termina-tion. Any balances, net of the continuing liabilities andcommitments under the activities financed, that may remainin a subaccount upon its termination are to be returned tothe contributor.

Administered Account—SpainThe account will be terminated when Argentina repays all theresources that were distributed, or at an earlier time as agreedbetween Spain and the IMF. Any remaining resources in theaccount at termination are to be returned to Spain.

The Post-Conflict Emergency Assistance Subsidy AccountThe account can be terminated by the IMF at any time. Anyremaining balances after discharge of all obligations of theaccount upon the account's termination are to be returned tothe contributors.


Frequently Used Abbreviations

AfDB African Development BankA M L / C F T Anti—money laundering/combating the

financing of terrorismAPEC Asia-Pacific Economic CooperationAsDB Asian Development BankASEAN Association of South East Asian NationsBCBS Basel Committee on Banking SupervisionBIS Bank for International SettlementsCARTAC Caribbean Regional Technical Assistance

CenterC C L Contingent Credit LineCEMAC Central African Economic and Monetary

CommitteeCFF Compensatory Financing FacilityC M C G Capital Markets Consultative GroupCSF Currency Stabilization FundDSBB Data Standards Bulletin BoardEBRD European Bank for Reconstruction and

DevelopmentECB European Central BankECOWAS Economic Community of West African StatesE C U European currency unitEFF Extended Fund FacilityEMS European Monetary SystemE M U European Economic and Monetary UnionE R M Exchange rate mechanism (of the EMS)ESAF Enhanced Structural Adjustment FacilityE U European UnionEWS Early warning systemFATF Financial Action Task ForceFDI Foreign direct investmentFIU Financial Intelligence UnitFSAP Financial Sector Assessment ProgramFSF Financial Stability ForumFSI Financial soundness indicatorFSLC Financial Sector Liaison CommitteeFSSA Financial System Stability AssessmentGAB General Arrangements to BorrowGDDS General Data Dissemination SystemGDP Gross domestic productGNP Gross national productGRA General Resources Account

HIPC Heavily Indebted Poor CountriesLAIS International Association of Insurance

SupervisorsIASC International Accounting Standards

CommitteeIATF Inter-Agency Task Force on Finance StatisticsIDA International Development AssociationIDB Inter-American Development BankIEO Independent Evaluation Office (of the IMF)IFAC International Federation of AccountantsIFC International Finance CorporationILO International Labor OrganizationIMFC International Monetary and Financial

CommitteeIOSCO International Organization of Securities

CommissionersI-PRSP Interim Poverty Reduction Strategy PaperLOI Letter of IntentNAB New Arrangements to BorrowNPV Net present valueODA Official Development AssistanceOECD Organization for Economic Cooperation

and DevelopmentOFC Offshore financial centerOPEC Organization of Petroleum Exporting

CountriesPIN Public Information NoticePRGF Poverty Reduction and Growth FacilityPRSP Poverty Reduction Strategy PaperROSC Report on the Observance of Standards

and CodesSAF Structural Adjustment FacilitySDDS Special Data Dissemination StandardSDR Special drawing rightSMP Staff-Monitored ProgramSRF Supplemental Reserve FacilitySTF Systemic Transformation FacilityTCAP Technical Cooperation Action PlanUFR Use of Fund ResourcesU N United NationsUNDP United Nations Development ProgramW A E M U West African Economic and Monetary UnionWTO World Trade Organization

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