Archived - Report on Operations Under the Bretton Woods and Related Agreements Act 2005 : 1

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Introduction

The Bretton Woods institutions—the International Monetary Fund (the IMF or the Fund) and the World Bank (the Bank)[1]—were founded at a conference held at Bretton Woods, New Hampshire, in 1944. The IMF was established to promote the smooth functioning of the international monetary system, encourage international trade and support high rates of sustainable economic growth. To achieve these goals, it exercises a surveillance function by monitoring members’ economic policies, provides policy advice and technical assistance, and extends short- and medium-term financial assistance to countries faced with balance of payments difficulties.

The World Bank’s goal is to reduce poverty by raising living standards and promoting sustainable development in developing countries. As the premier development institution in the world, it provides a wide range of assistance to developing countries, including economic policy advice and lending and technical assistance for projects that promote sustainable growth and an improved quality of life.

Canada is the eighth largest member of the IMF (as measured by quotas), tied with China, after the six other Group of Seven countries and Saudi Arabia. Along with China, India, Italy, Russia and Saudi Arabia, Canada is the sixth largest shareholder of the World Bank. On the Executive Boards of the two institutions, Canada represents Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. On the Bank’s Executive Board, Canada also represents Guyana. Canada’s formal participation in the two institutions is authorized under the Bretton Woods and Related Agreements Act. Section 13 of the Act states:

The Minister of Finance shall cause to be laid before Parliament, on or before March 31 next following the end of each calendar year or, if Parliament is not then sitting, on any of the first thirty days next thereafter that either House of Parliament is sitting, a report containing a general summary of operations under this Act and details of all those operations that directly affect Canada, including the resources and lending of the World Bank Group, the funds subscribed or contributed by Canada, borrowings in Canada and procurement of Canadian goods and services.

This report has been prepared in accordance with this provision. The sections that follow review the activities and operations of first the IMF and then the World Bank for the year 2005. A final section deals with issues common to both institutions. The annexes contain detailed numerical summaries of the year’s activities. The 2005 spring and fall communiqués of the International Monetary and Financial Committee (IMFC) of the Board of Governors of the IMF and the Development Committee (DC) of the Boards of Governors of the World Bank and the IMF are also appended for information. The IMFC and DC are the key policy committees of the IMF and World Bank Boards of Governors, and their communiqués steer the policy direction of the two institutions.

Roles of the International Monetary Fund and World Bank

International Monetary Fund

  • Oversees the international monetary system and promotes international monetary cooperation.
  • Identifies financial vulnerabilities and promotes remedies to prevent financial crises.
  • Promotes orderly exchange rate relations among member countries.
  • Provides short- to medium-term financial support to members facing balance of payments difficulties.
  • Provides support for poverty reduction through promotion of economic stability.

World Bank

  • Provides support for poverty reduction in developing countries through investments in areas such as health and education.
  • Promotes economic development and structural reform in developing countries.
  • Assists developing countries through long-term financing of development projects and programs.
  • Provides special financial assistance to the poorest developing countries through the International Development Association.
  • Stimulates private enterprise development and private investment in developing countries primarily through its affiliates, the International Finance Corporation and the Multilateral Investment Guarantee Agency.
  • Enhances the flow of capital and technology for productive purposes to developing countries by providing investment insurance against non-commercial risks for investments in developing countries.

International Monetary Fund

Benefits of Membership

As a major trading nation, Canada benefits from a strong international monetary system that facilitates the free movement of goods, services and capital. The IMF promotes international financial stability and economic growth through the provision of policy advice and financial and technical assistance to countries experiencing unsustainable external imbalances and related economic difficulties.

IMF membership provides a number of specific benefits:

  • The Minister of Finance is a Governor of the Fund and elects an Executive Director to its 24-member Executive Board. This representation allows Canada to have high-level influence on decisions taken by the IMF on specific country assistance programs and major policy issues affecting the world monetary and financial system.
  • The IMF, through its regular surveillance of the Canadian economy, provides Canada with an independent source of policy advice on macroeconomic policies and engages in regular dialogue on these policies with Canadian officials at the Department of Finance Canada, other government agencies and the Bank of Canada.
  • The efforts of the IMF to make sure that countries abide by their obligations, including those under Fund-supported programs, help ensure that they repay Canadian bilateral loans and use our bilateral development assistance effectively.
  • Canada earns a market rate of return on its financial position in the IMF.
  • Were Canada to experience severe balance of payments difficulties, it would have the right to draw on IMF financial assistance.

Membership allows Canada, in cooperation with its international partners, to play an active role in identifying areas where reforms to the Fund are required and taking steps to implement those reforms. To enhance the Fund’s effectiveness, reforms have focused on six main areas:

  • Improving transparency, accountability and openness.
  • Strengthening surveillance.
  • Enhancing crisis resolution.
  • Improving the effectiveness of IMF lending.
  • Safeguarding the IMF’s cooperative nature.
  • Strengthening support for low-income countries.

Looking forward, a key objective for Canada is to ensure that the Fund has the tools to promote international financial stability. To meet this objective, Canada supports:

  • Strengthening surveillance to prevent crises through greater attention to financial vulnerabilities and increased transparency of information.
  • Improving the institutional capacity of countries to support strong macroeconomic frameworks and more resilient financial systems.
  • Enhancing the capacity of the Fund to manage and resolve financial crises.
  • Improving IMF lending to promote economic reform.
  • Strengthening governance and accountability of the IMF and its members.

Canada continues to place a high priority on strengthening support for low-income countries. The IMF plays a crucial role in supporting macroeconomic stability as a key tool for poverty reduction in the poorest countries and is integrating its efforts with those of the World Bank.

The Fund’s involvement in these key areas, and Canada’s priorities related to these efforts, are described in more detail in the sections that follow.

How the IMF Works

The IMF works like a credit union. It has a large pool of liquid assets, or resources, comprising convertible national currencies, special drawing rights,[2] and other widely used international currencies provided by its members, which it makes available to help members finance temporary balance of payments problems.

Members provide resources to the IMF in amounts determined by "quotas" reflecting each country’s relative importance in the world economy. A country’s quota in turn helps determine the amount of Fund resources that it may use should it experience economic difficulties. At the end of 2005 the total quota for the Fund’s 184 members was SDR 213.5 billion.

A member country uses the general resources of the IMF by purchasing (drawing) other members’ currencies with an equivalent amount of its own currency. A member repurchases (repays) its own currency from the IMF with other members’ currencies over a specified period of time, with interest. In this way, a member country receives credit from other members.

Members seeking financial assistance can draw on four "credit tranches," each amounting to 25 per cent of their quota. For access to resources beyond the first credit tranche, the member and the IMF have to reach an agreement on a set of economic measures and reforms aimed at removing the source of the country’s balance of payments difficulty and creating the conditions necessary for sustainable non-inflationary growth.

Depending on the prospective duration of the problem, these measures are agreed to as part of a Stand-By Arrangement, which typically lasts one to two years, or an Extended Fund Facility, which generally runs for three years. Short-term financing for balance of payments difficulties related to crises of market confidence is also available through the Supplemental Reserve Facility, created in December 1997.

Members can also use financial facilities created for specific purposes, including emergency assistance for member countries afflicted by natural disasters or recovering from conflict situations.

Concessional financing to low-income developing countries under the Poverty Reduction and Growth Facility (formerly the Enhanced Structural Adjustment Facility) is made available in the form of low-interest loans with extended maturity periods.

Developments in Emerging Markets

Late in 2005, Brazil and Argentina, two of the IMF’s top three debtors (owing US$15.46 billion and US$9.57 billion, respectively, and representing 39 per cent of outstanding credit) announced their intention to fully repay their IMF debt in advance. These repayments were completed as of January 3, 2006.

Brazil’s early repayment came in the context of the growing strength of the country’s external position, particularly its substantial trade and current account surpluses and strong capital inflows that have greatly boosted reserves and reduced external debt. IMF Managing Director Rodrigo de Rato welcomed the decision, and in a visit to Brazil, he highlighted the close relations between Brazil and the Fund, stating, "Although Brazil is no longer a borrower from the IMF, the Fund will continue to play an important role as adviser, and exchange views with Brazil on global economic issues, where Brazil plays an important role."

The decision made by Argentina’s authorities reflects their confidence that their external position is sufficiently strong to warrant early repayment. Important challenges and opportunities lie ahead for Argentina, and the Fund intends to maintain a productive relationship with the Government to help Argentina address these challenges.

In May 2005, the IMF signed a three-year, US$10-billion Stand-By Arrangement with Turkey, the Fund’s largest borrower with 25 per cent of total credit outstanding. The program is designed to help Turkey extend its recent solid economic performance and reduce its vulnerabilities. Although the program went off track early, it is now back on track and Turkish macroeconomic performance in 2005 remained strong. Real gross domestic product (GDP) grew by an estimated 5.0 per cent in 2005, moderating to a more sustainable rate after rapid growth of 8.9 per cent in 2004. The disinflation program has continued to be successful; 2005 year-end inflation declined to 7.7 per cent, beating the IMF-backed 8-per-cent target. For 2006, the central bank has formally adopted inflation targeting; it will aim for 5-per-cent inflation with a plus/minus 2-per-cent band. The current account deficit, however, remains a key concern. In 2005, it continued to widen, increasing to more than 6 per cent of GDP. Although there are signs that the quality of financing is improving, the deficit is still largely funded by sizeable short-term flows. This leaves Turkey’s balance of payments exposed to shocks and changes in investor sentiment.

Promoting International Financial Stability

The Fund remains the central institution charged with fostering global financial stability. The mission of the Fund—to promote global prosperity and financial stability—remains as valid today as ever and its four broad lines of activity—surveillance, lending, capacity building, and its work to assist low-income countries—represent the best channels through which it can achieve its objectives. The key challenge for the Fund is now to adapt its surveillance, lending, capacity building and governance structures, to meet the challenges of the 21st century.

In order to continue to effectively and credibly fulfill this obligation, the Fund must adjust to meet the rapidly evolving challenges of the international financial system. Managing Director de Rato, with the support of Canada and other Fund members, has recognized the pressing need for a strategic review of the Fund’s direction in order to better focus its efforts on responding to these challenges. At the meeting of the International Monetary and Financial Committee in September 2005, the Fund membership endorsed the broad priorities he set forth in The Managing Director’s Report on the Fund’s Medium-Term Strategy and his suggested priorities for substantive reforms. The following sections discuss some of the work already underway on these priorities.

The IMF’s Strategic Review

During his first year as head of the IMF, Managing Director de Rato discussed the Fund’s strategic direction with staff, management, the Executive Board, as well as country authorities and outside observers. In September 2005, he set out his views on a vision to guide the day-to-day work and decisions of the Fund. The broad priorities set out in The Managing Director’s Report on the Fund’s Medium-Term Strategy are to:

  • Make surveillance more effective.
  • Adapt to new challenges and needs in different member countries.
  • Help build institutions and capacity.
  • Prioritize and reorganize the IMF’s work within a prudent medium-term budget.
  • Address the issues of fair quotas and voice.

In September 2005, the International Monetary and Financial Committee welcomed these broad priorities. The Fund is now developing specific proposals and timelines on the main tasks to implement substantive reforms in these areas and strategically refashion itself to increase its relevance, effectiveness and legitimacy.

Strengthening Surveillance

Making Surveillance More Focused

Through its surveillance role, the IMF monitors economic and financial developments and policies in individual member countries and globally. Fund surveillance is critical as it can identify emerging problems before they become crises. Improved surveillance by the IMF is central to crisis prevention as it supports member countries and the private sector by making information available for sound economic analysis, including better pricing of risk. This, in turn, leads to more stable capital flows.

The Fund has made considerable progress in strengthening its surveillance operations, especially by promoting enhanced transparency in member countries and improving its analytical tools for the early identification of countries’ vulnerability to crisis.

Building on the Fund’s 2004 biennial review of the implementation of surveillance, the Fund is now tightening the focus of surveillance, with a sharper focus on its core areas of expertise and on issues of national relevance and systemic importance for global economic and financial stability. A more selective and focused approach should allow the Fund to shape its advice to recognize the constraints and opportunities within countries. Canada supports the Fund taking a longer-term view of specific issues of importance to the global economy. This would further strengthen the Fund’s contribution to fostering international financial stability.

Making Surveillance More Effective

Assessment of economic conditions in individual member countries and the global economy is a central pillar of the IMF’s mandate and provides the basis for an ongoing economic policy dialogue with national authorities. In addition to the regular (usually annual) Article IV reports on economic developments, policies, and prospects in individual countries, the IMF conducts surveillance of developments in the global economy as a whole. These multilateral surveillance activities, published in the form of the semi-annual World Economic Outlook and Global Financial Stability Report, allow the Fund to take stock of trends and policy issues that would not be as clear if they were analyzed only at the level of individual countries.

The Fund also works with its members and other international institutions to develop best practices in key areas of policy that can be assessed in the context of its surveillance activities. These initiatives include work on standards and codes, data provision, strengthening financial sectors, and technical assistance. An element of strengthened surveillance is better integrating technical assistance and policy advice into the surveillance process to ensure that members have the expertise and sustained capacity to implement reforms.

IMF Transparency

Canada supports measures to enhance the transparency and accountability of the Fund’s own operations. This reflects the view that the IMF’s effectiveness depends in part on its ability to be transparent and fair in the provision of policy advice to its members, accountable for its advice and lending decisions, and open to external input and dialogue. The IMF has adopted a series of measures in recent years to improve transparency, including guidelines under which the Fund now publishes most of its policy papers as well as detailed information about its operations and finances. In 2005, Executive Directors reviewed the Fund’s transparency policy and recommended measures to maintain the candour of staff advice and expedite the publication of Fund documents. The key initiatives in place to promote IMF transparency include the following:

  • Publishing more information about IMF surveillance of members, including Public Information Notices (PINs), which provide background information on a member country’s economy and the IMF’s assessment of the country’s policies and prospects. PINs are issued at the country’s request following the conclusion of the Fund’s regular Article IV consultations. Over 80 per cent of IMF member countries have agreed to the publication of PINs. The Fund has also adopted a policy establishing a presumption of publication of Article IV reports. Canada’s most recent PIN and Article IV report can be found on the IMF website at www.imf.org/external/country/can/index.htm.
  • Encouraging countries to publish the mission statements that are prepared at the time of the IMF’s Article IV consultations with member countries. Prior to the preparation of the staff’s report to the Executive Board, the IMF mission often provides a country’s authorities with a statement of its preliminary findings. A number of countries, including Canada, now release these statements. Canada’s most recent mission statement can be found on the IMF website at www.imf.org/external/country/can/index.htm.
  • Releasing more information about countries’ IMF-supported programs and the Executive Board reviews of these programs. The Fund has adopted a policy establishing a presumption of publication of Letters of Intent and other documents that underpin Fund-supported programs. Nearly all policy intention documents of countries requesting Fund financial assistance are published, and over three-quarters of staff reports on Article IV consultations and reports on the use of Fund resources are published. The publication of staff reports on the use of Fund resources in exceptional access cases would generally be a precondition for management to recommend approval or augmentation of a financing arrangement or completion of a review by the Executive Board.
  • Publishing staff papers on key policy issues and issuing PINs of the Board discussions of these papers. In addition, the Fund is increasingly posting draft papers on important policy issues on its website so that the views of civil society can be taken into account. As well, more financial information is being released, including the sources of financing for the IMF’s lending activities (i.e. it’s quarterly financial transactions plan).
  • Providing the public with substantially expanded access to the Fund’s archival material.

To help improve economic policy making and strengthen the international financial system, the international community has called upon the IMF and other standard-setting agencies to develop standards and codes covering a wide range of economic and financial areas. In this effort, the Fund is responsible for its core areas of expertise. To date, the Fund has adopted a data dissemination standard, a code on fiscal transparency and a similar code with respect to monetary and financial policies.

The IMF has a key coordinating role in assessing observance of codes and standards through its Reports on the Observance of Standards and Codes (ROSCs), as well as through the joint IMF–World Bank Financial Sector Assessment Program (FSAP). In 2005, the Fund Executive Board reviewed the experience to date with both the FSAP and ROSC programs.

In March 2005, the Executive Board reviewed the experience with the FSAP, which remains a cornerstone of financial sector work by the Fund and the World Bank in member countries. About 120 countries, two-thirds of the membership, have participated or requested participation in the program. Feedback from country authorities underscored the usefulness of the program in diagnosing stability and development issues in financial systems and in charting appropriate policy responses.

Executive Directors agreed that the two key features of the program—its joint Bank-Fund character and voluntary nature—should remain unchanged to pool the resources and expertise of the two institutions and to ensure country ownership of the process. They noted that improved prioritization and streamlining have resulted in assessments that are better tailored to country circumstances. They endorsed the definition of the minimum element of an update as comprising an assessment of financial sector developments and progress in implementing earlier FSAP recommendations, and an average frequency of FSAP updates of about five years.

The review also enabled the Fund and the Bank to address member countries’ suggestions for further improvement and to enhance the impact of the FSAP process. Some reform directions include: more systematic participation in Article IV consultations by financial sector specialists and more technical support from headquarters; more systematic technical assistance follow-up; and additional research into developmental and stability issues to better underpin policy advice in the financial sector. These reform directions, combined with further proposals from the 2006 reviews of the program by the Fund’s Independent Evaluation Office and the Bank’s Operations Evaluation Department and from the Fund’s own strategic review, are expected to help strengthen the effectiveness of the program further. In this context, Executive Directors agreed to conduct another review on progress made in three years.

In July 2005, the Executive Board considered a joint IMF–World Bank staff paper on the standards and codes initiative, which was launched in 1999 as a prominent component of efforts to strengthen the international financial architecture by promoting greater financial stability, at both the domestic and international levels, through the development, dissemination and adoption of international standards and codes. Executive Directors saw merit in maintaining the initiative, stressing that it has already delivered substantial results and that it is expected to yield further benefits, particularly in assisting members to implement institutional reforms. They generally agreed that the scope of the initiative and its key governance features should be left unchanged at this time.

Executive Directors recommended a number of changes to enhance the initiative’s effectiveness. They called for stronger efforts to encourage country participation and supported a more flexible approach for updating reports, which would see an average update frequency of five years, with flexibility in frequency and scope to allow for country-specific circumstances and needs. They also supported measures to strengthen the integration of the initiative with Fund surveillance and provision of technical assistance. In particular, to ensure adequate transfer of knowledge between departments, ROSC teams would identify a list of key recommendations of macroeconomic relevance to be followed up in Article IV consultations, and post-ROSC wrap-up meetings between the ROSC teams and the area departments would take place to discuss the list. In line with the conclusions of the latest biennial review of surveillance, Executive Directors stressed the need to reflect ROSCs’ relevant findings in Article IV reports. Directors agreed to conduct another review in three years.

In addition to the ROSC and the FSAP, the IMF is involved in international efforts to combat financial abuses that threaten the integrity and stability of the international financial system. In particular, the Fund has:

  • Expanded its anti-money laundering work, including through FSAPs, to cover legal and institutional frameworks.
  • Extended its involvement beyond anti-money laundering to efforts aimed at countering terrorist financing.
  • Accelerated its program of offshore financial centres and undertaken onshore assessments in the context of the FSAP.
  • Enhanced its collaboration with the Financial Action Task Force to develop a mutually acceptable global standard on anti-money laundering.
  • Intensified its provision of technical assistance to enable members to implement the agreed-upon international standards and extended it to include help for the creation of financial intelligence units.

IMF members agree that technical assistance should play a central role in supporting the work of the IMF in crisis prevention and management, debt relief and poverty reduction, and capacity building in low-income and transition countries. Since the demand for IMF technical assistance normally exceeds the resources available, the IMF takes a number of considerations into account in setting priorities for country requests. Under guidelines approved in 2001, priorities for technical assistance are set in accordance with the IMF’s core areas of specialization, its main program areas and its key policy initiatives, which enables a more systematic alignment of resource commitments with institutional priorities. At a March 2004 review, the Fund’s Executive Board emphasized the essential contribution of IMF technical assistance in helping low-income countries and countries emerging from conflict situations, in particular in laying the capacity, institutional and governance foundations for sustained growth and poverty reduction.

In recent years, the IMF has adopted a regional approach to the delivery of technical assistance and training. To help provide technical assistance in the Caribbean region, the Fund, in close collaboration with Canada, established the Caribbean Regional Technical Assistance Centre (CARTAC), which became operational in September 2001. Canada is the largest single donor to CARTAC, which is designed to strengthen the region’s technical capability in financial sector regulation and supervision, tax administration and other areas. Canada is also a major financial contributor to the African technical assistance programs. The IMF opened a fifth regional technical assistance centre, the Middle East Technical Assistance Center, in Beirut, Lebanon, in October 2004.

The IMF’s Surveillance of Canada’s Performance

Each year, IMF officials hold meetings in Ottawa and selected regions of Canada as part of the Fund’s Article IV surveillance activities. In December 2005, it released its preliminary conclusions on the most recent consultation, noting that Canada’s macroeconomic performance remains impressive and the economic outlook is favourable. The Fund noted that Canada’s fiscal framework continued to deliver an enviable performance relative to other industrial countries, with eight consecutive federal surpluses. In the Fund’s view, the key challenge remains to improve the economy’s flexibility and to support long-term growth, particularly by building on earlier initiatives aimed at ensuring the sustainability of the public health system, reducing the volatility of equalization payments to the provinces and improving Canada’s productivity growth.

Enhancing Crisis Resolution

One of the IMF’s primary goals is to reduce the frequency and severity of international financial crises. Despite crisis prevention efforts, financial crises still occur. The IMF is therefore engaged in the search for possible reforms to improve its capacity to manage and resolve financial crises. Canada welcomes ongoing efforts to advance crisis resolution initiatives, as these efforts will ultimately promote a stronger, more stable and more efficient international financial system.

Better Understanding Capital Account Crises

Today’s crises (which often originate in the capital account of the balance of payments) can often be too large for the Fund to respond to merely by providing financial assistance. Improving the Fund’s ability to respond to crises also requires it to better understand the dynamics of capital account crises, including the behaviour of private capital markets. The Fund is working to identify the factors that will help countries to regain early and sustained access to international capital markets in a manner that places less emphasis on large-scale assistance. In February 2006, Managing Director de Rato announced proposals to strengthen the Fund’s financial and capital market work by creating a new department that will be a centre of excellence for all aspects of financial, capital market, and monetary work in the IMF. The new department will merge the functions and staff of two existing departments: the International Capital Markets Department and the Monetary and Financial Systems Department. This department will continue the Fund’s efforts to help countries gain access to international capital markets, an important step in helping the poorest countries make a breakthrough in poverty reduction. The semi-annual Global Financial Stability Report will summarize the Fund’s research in this area. The Managing Director also announced the establishment of a Financial Sector Steering Committee, which he will chair. This committee will guide the merger, coordinate financial sector work, and ensure Fund management’s close attention to financial sector issues. In addition, the Capital Markets Consultative Group will continue to promote a better dialogue between member countries and private investors and creditors.

The IMF’s Approach to Capital Account Liberalization

The IMF established the Independent Evaluation Office (IEO) in 2001 to undertake objective assessments of the IMF’s operations, policies and programs. The IEO operates independently of IMF management and at arm’s length from the Fund’s Executive Board. In 2005, it assessed the Fund’s approach to capital account liberalization. In recent years, the role of the IMF in capital account liberalization has been a topic of major controversy, particularly because this is an area where there is little professional consensus. While the IEO did not find that the Fund exerted significant leverage to push countries to liberalize their capital accounts more quickly than they wanted to, it did find that the risks of liberalization and the policy and institutional responses needed to mitigate them were insufficiently highlighted. The Fund did not translate the risks into operational advice on pace and sequencing of reforms until later in the 1990s. In multilateral surveillance, the Fund focused on the benefits of greater access to capital flows, while paying comparatively less attention to the risks. As a result, the Fund focused on advising recipient countries on how to manage inflows, rather than addressing the supply-side factors in source countries that drive capital flow volatility. The Fund has learned from experience and from the emerging professional literature and adapted its work on capital account issues in response. The IEO recommended that the Fund clarify its approach to capital account issues, including by sharpening its advice based on particular risks facing specific countries, and pay greater attention to the supply-side factors of international capital flows.

Implementing the New Access Policy Framework

In 2002, the Fund established clearer rules and procedures for determining exceptional access to its resources (i.e. loans that are larger than allowed under normal IMF lending rules) for countries that face financial crises. These were reviewed in April 2005 and Directors agreed that there was no strong basis for changing the existing framework. Canada supports strict adherence to these criteria to help shape the expectations of members and markets alike, to provide a benchmark for decisions regarding program design and access, to safeguard the integrity of the IMF’s resources and to ensure uniform treatment of members. In addition, the procedures for consideration of exceptional access requests should be further strengthened by taking alternative forecasts into account and by giving timely and careful consideration to the financial implications that these exceptional access decisions will have for the Fund.

Exceptional Access Policy Criteria and Procedures

In September 2002, the IMF’s Executive Board endorsed the following criteria that, at a minimum, would need to be met to justify exceptional access to IMF resources for member countries facing a capital account crisis:

  • The member is experiencing exceptional balance of payments pressures on the capital account resulting in a need for Fund financing that cannot be met within normal limits.
  • A rigorous analysis indicates a high probability that the higher level of debt remains sustainable.
  • The member has good prospects of regaining access to private capital markets within the time Fund resources would be outstanding, so that IMF financing would provide a bridge.
  • The policy program of the member country provides a reasonably strong prospect of success, based on both the member’s adjustment plans and its institutional and political capacity to implement that program.

The Board also expressed support for strengthening procedures for decision making on exceptional access proposals, including:

  • Increasing the burden of proof required in program documents by requiring more extensive justification of the level of access, a rigorous analysis of debt sustainability, and an assessment of the risks to the IMF arising from the exposure and the effect on the IMF’s liquidity position.
  • Formalizing early Executive Board consultation on the status of negotiations in exceptional access cases.
  • Requiring ex post evaluation of programs of exceptional access.

Promoting the Adoption of Collective Action Clauses
and Assessing Voluntary Codes of Conduct

The Fund is also exploring options that governments and the private sector could adopt to help resolve problems such as sovereign debt issues without financial assistance from the Fund. One of the impediments to successful restructurings of sovereign debt in emerging market financial crises has been the sheer number of creditors involved and the difficulties they face in coordinating and communicating amongst themselves. Collective action clauses are an effective crisis prevention and resolution mechanism, as they facilitate more timely and orderly restructurings of sovereign debt. They do so by providing for a mechanism for creditors as a whole to delegate negotiations to a sub-group of lenders, with voting on the restructuring offer occurring in such a way that the majority decision is binding on all creditors. Significant progress has been made in this area, with most emerging market borrowers adopting collective action clauses in their recent bond issues. In 2002, only about 30 per cent of outstanding emerging market bonds included collective action clauses. By the middle of 2005, over 50 per cent of emerging market bonds in circulation included such clauses. The widespread adoption of collective action clauses in sovereign bond contracts is an important development in promoting the orderly resolution of financial crises.

The private sector and a group of emerging market economies have also drafted a voluntary code of conduct to guide sovereign debtors and their creditors in the restructuring of sovereign debt. While refinements will likely be made to this draft code over time, it does provide a broad framework for improving the international community’s crisis management efforts and should help guide overall relations between sovereign debtors and their private sector creditors. In addition, the IMF is continuing to look for ways to improve its crisis resolution efforts by maintaining an active dialogue with private market participants and debt managers and reviewing the implementation of its lending into arrears policy.

Improving IMF Lending

A major focus recently has been to examine how resources can be used more efficiently to meet the needs of member countries in promoting economic reform. To that end, the IMF has adopted new guidelines on the conditions attached to its loans and streamlined the structure of its lending facilities.

Focusing Conditionality and Fostering Ownership

An important feature of IMF arrangements is the "conditionality" that borrowing countries undertake to correct their underlying balance of payments problems and restore their ability to repay the Fund. Over time, conditionality had broadened in scope and become more complex, leading to concerns about its impact and effectiveness. In the fall of 2002, the IMF approved new guidelines on the design and implementation of conditionality in Fund-supported programs.

The new guidelines are aimed at streamlining and focusing conditionality in areas of IMF core competencies in order to enhance the effectiveness of Fund-supported programs and promote national ownership of reforms. They emphasize the need to focus conditionality on policies that are critical to achieving the macroeconomic objectives of programs. The guidelines are based on several interrelated principles, including national ownership of reform programs, parsimony in the application of program-related conditions, effective coordination with other multilateral institutions, and clarity in the specification of program conditions.

Conditions will normally consist of macroeconomic and structural measures that are within the Fund’s core areas of responsibility. Where structural reforms that are critical to a program’s success lie outside the Fund’s core areas of expertise, the Fund should work with the World Bank and other international financial institutions, which have a comparative advantage in the design and monitoring of these measures. A key aspect is that the country should take primary responsibility for its own policies and that conditionality, if well designed and established through a mutually acceptable process led by the member, can strengthen and promote ownership. The IMF has observed that implementation of the new guidelines is leading to changes in the scope and design of Fund programs—structural conditionality is more focused on the Fund’s core areas of competence and the average number of structural conditions has declined.

Promoting Policy Improvements in Member Countries

The Fund has recognized the importance of good governance as an element of a country’s successful transition from Fund programming. Canada supports this emphasis and believes that sensible policy choices are essential to a country’s economic performance and to its citizens’ well-being. This was reflected in Canada’s strong support for the Fund’s efforts to persuade Zimbabwe to change its policy stance. Since 2001, the Government of Zimbabwe has been unwilling to cooperate with the Fund or the international community to improve its policies. In the summer of 2005, the Government launched "Operation Restore Order," which the United Nations estimates has cost 700,000 Zimbabweans their homes or jobs or both, with a further 2.4 million affected to varying degrees. Canada expressed dismay at this disregard for the most basic rights and dignity of the Zimbabwean people. During this period, the Government of Zimbabwe also went into arrears with the Fund, a dereliction of its obligations as a member that could have led to its expulsion from the Fund. Canada’s concern over Zimbabwe’s poor governance culminated in our Executive Director’s strong support for the IMF to proceed with the country’s compulsory withdrawal from the Fund. While Zimbabwe is now paying its arrears, removing the immediate prospect of expulsion, Canada continues to press Zimbabwe to improve its social and economic policies.

In 2005, Directors reviewed the experience with the new guidelines and concluded that substantial progress has been made in aligning practice with the new guidelines, but that room for improvement remains. In particular, conditionality is now more focused on issues critical to the success of Fund programs, clarity on the conditions included in programs has increased and collaboration with the World Bank is improving. Improvements could be made in program implementation and country ownership. To foster ownership, Directors encouraged staff to work with authorities to establish a common understanding of the nature of the problems facing the country and to develop alternative policy options.

Safeguarding the IMF’s Cooperative Nature

The IMF’s cooperative nature is reflected in its resource base, which is derived primarily from the quota subscriptions of member countries, and the consensus-based nature of its decision-making process. If the Fund is to promote international financial stability effectively, it must have adequate resources and ensure that its quota structure and governance arrangements are representative of the membership.

The Fund measures the adequacy of its resources through its forward commitment capacity. This represents the amount of quota-based and non-concessional resources available for lending to member countries. The one-year forward capacity reflects the IMF’s stock of usable resources minus undrawn balances for current lending arrangements, plus projected repayments by IMF borrowers over the coming 12 months. A prudential balance—to safeguard the liquidity of creditors’ claims and to take account of a potential erosion of the resource base—is also deducted to arrive at the final forward commitment amount. At the end of 2005, the IMF’s one-year forward commitment capacity amounted to SDR 106 billion (US$153 billion). With the repayment of outstanding credit by Brazil and Argentina in early 2006, this capacity has increased significantly beyond this level.

Quota Resources

Quota reviews are held every five years to assess the adequacy of IMF resources. The Twelfth Quota Review was concluded in January 2003, but the broad support necessary for a quota increase did not emerge. It was agreed during the Thirteenth Quota Review period to assess the adequacy of Fund resources, to consider measures to achieve a distribution of quotas that reflects developments in the world economy, and to consider measures to strengthen the governance of the Fund. While the Fund has sufficient resources to meet projected needs and no general increase in quotas is required, a redistribution of quotas and voting power to those rapidly growing economies, largely in Asia, whose quotas have not kept pace with their greater role in the global economy would further strengthen the legitimacy of the Fund’s governance arrangements. At the September 2005 meeting of the International Monetary and Financial Committee, Canada’s Finance Minister stressed the need for the IMF to move forward on quota reform. The Committee asked the Fund to continue its consideration of issues of quotas and voting power, and asked for a progress report for its meeting in April 2006.

Management Practices

To keep pace with a changing global economy, the Fund requires a structure that is accountable with a modern management focus to help it deliver effective results. Canada supports efforts by the Fund to strengthen the linkage between its strategies and its administrative budget. The Executive Board has endorsed a new approach to enhance the budget’s strategic focus and better support priority setting. For new initiatives, the Fund will seek the required resources through reallocation or from efficiency savings. A new medium-term budget framework will set out the overall resource envelope and allocate resources for desired outputs. Annual budgets will be prepared in terms of outputs, and performance indicators will be developed and incorporated. A review of the Fund’s employment structure, compensation and benefits is underway and will be completed before the end of the Fund’s fiscal year.

How to Access Information at the IMF

A vast array of Fund information—including fact sheets, press releases, speeches, the IMF Survey, annual reports, world economic outlooks, staff country reports and working papers—is available on the Fund’s website at www.imf.org. In addition, the IMF’s Publications Services provides a wide variety of Fund documents on the policies and operations of the IMF, as well as world financial and economic developments:

  • IMF annual reports.
  • World Economic Outlook.
  • Global Financial Stability Report.
  • IMF staff country reports.
  • International Financial Statistics.
  • Annual Report on Exchange Arrangements and Exchange Restrictions.
  • Press releases.
  • IMF Survey.
  • Publications of the Independent Evaluation Office.

Publications Services is located at 700 – 19th Street N.W., Washington, DC 20431, USA. Phone: (202) 623-7430; fax: (202) 623-7201. Internet e-mail address: publications@imf.org.

Strengthening Support for Low-Income Countries

The IMF is fully committed to supporting low-income members in advancing towards the United Nations Millennium Development Goals through its poverty reduction and debt relief efforts. Canada places a high priority on reducing poverty and ensuring that debt relief goes to the poorest, most heavily indebted countries committed to good governance. Although the World Bank is the central institution for poverty reduction, the IMF plays a role in promoting macroeconomic stability—a key condition for achieving poverty reduction and growth. Direct anti-poverty measures are playing a central role in programs supported by the IMF through its Poverty Reduction and Growth Facility (PRGF). These programs are consistent with nationally owned Poverty Reduction Strategy Papers prepared by borrowing countries, and are based on a process involving the participation of civil society, non-governmental organizations, donors and international institutions.

In September 2005, the International Monetary and Financial Committee declared its support for the proposal to provide 100 per cent cancellation of debts owed by heavily indebted poor countries to the IMF, the World Bank’s International Development Association and the African Development Fund. This will provide significant additional resources to help these countries reach the Millennium Development Goals and reinforce their longer-term debt sustainability. The Committee welcomed an approach that respects the Fund’s principle of uniformity of treatment, recognizes the importance of maintaining the IMF’s capacity to provide financing to low-income countries, and acknowledges that countries benefiting from irrevocable debt relief should have demonstrated sound policies and high standards of governance. This Multilateral Debt Relief Initiative is examined further in the "Joint Issues" section of this report.

The IMF reacted quickly to the Asian tsunami disaster of December 2004. Drawing on its expertise, the IMF immediately provided advice and technical assistance to assess the macroeconomic impact and budgetary and balance of payments needs related to the disaster. To support recovery, the Fund also committed to provide financial assistance, primarily through an emergency assistance facility, which can quickly make sizeable funds available without an IMF program. The IMF estimated that its financing could be in the order of US$1 billion for the most affected countries. In January 2005, the Executive Board approved modifications to the emergency assistance facility to allow funds to be provided under this facility to low-income countries at a subsidized interest rate, with the subsidy element financed through donor resources. Canada contributed $5 million to this effort. In 2005, this facility provided emergency assistance to the Maldives and Sri Lanka to assist their recovery from the tsunami.

Policy Support Instrument

The IMF has been working on new instruments to strengthen its support to low-income countries. At the September 2005 meeting of the International Monetary and Financial Committee, Governors endorsed the Policy Support Instrument (PSI). Based on a policy initiative put forward by the Canadian Executive Director, this non-lending instrument will be available to members that do not need, or want, IMF financial assistance, but voluntarily request IMF endorsement and continued assessment of their policies as meeting the standard for accessing Fund financing. The country-owned policy frameworks designed by the authorities would consolidate medium-term macroeconomic and financial stability, and deepen reforms in support of poverty reduction and economic growth. The PSI will be particularly useful to countries with strong macroeconomic foundations that nonetheless continue to depend on other donors for development financing or that are in transition to market-based financing. It will also help eliminate the need for countries to borrow from the Fund merely to demonstrate their commitment to the sound policies needed to unlock Paris Club debt rescheduling or cancellation.

Nigeria and the PSI

In 2005, Nigeria became the first country to use the PSI. The Executive Board of the Fund approved a PSI for Nigeria on October 17, 2005. The Paris Club agreed to accept this as adequate demonstration of Nigeria’s commitment to sound economic policies. Consequently, Paris Club creditors agreed to allow a debt cancellation estimated at US$18 billion on October 20, 2005, representing an overall cancellation of about 60 per cent of Nigeria’s debt to the Paris Club, in exchange for payments of US$12.6 billion to Paris Club creditors over the next six months. This cancellation would be phased with IMF reviews under the PSI. This innovative treatment of Nigeria’s debt offered advantages to Nigeria and Paris Club creditors.

Exogenous Shocks Facility

A new facility in the PRGF Trust will also be available to complement existing instruments by providing timely concessional support to low-income members (outside of regular PRGF arrangements) and that are facing exogenous shocks. Following the October 2004 Development Committee request for the Bank and the Fund to accelerate their work on means to help mitigate the impact of exogenous shocks on low-income countries, the Fund staff recommended modifications to the PRGF Trust in July 2005 to create an Exogenous Shocks Facility (ESF) within the PRGF. Because shocks, such as spikes in energy prices or natural disasters, can have significant negative economic impacts on low-income countries, especially those whose economies lack diversification and have limited capacity to build up reserves, IMF members agreed the Fund could usefully supplement national efforts to reduce vulnerability to shocks. The ESF will provide temporary external financing for low-income countries qualifying for the PRGF that experience a sudden and exogenous shock. In September 2005, the Group of Eight (G8) called for the immediate establishment of the ESF as recommended by the IMF. Canada, like other G8 countries, supported the creation of this facility to supplement debt relief under the PRGF. The ESF structure was formally established within the PRGF in December 2005 and several countries have already indicated their intention to finance the ESF, which will begin operation once sufficient financing has been provided.

Lending Developments in 2005

A core activity of the Fund is to provide short- and medium-term financial assistance to members faced with balance of payments difficulties. The objective is to enable countries facing such difficulties to correct temporary payments imbalances with a minimum of disruption to the international monetary system. The provision of financing from the IMF, as well as the additional financing that an arrangement with the Fund often attracts from other sources, enables countries to undertake smoother economic adjustment.

At the end of 2005, the IMF had lending arrangements worth SDR 21.7 billion in place for 44 member countries (see Annex 1). This represented a sharp decline from the SDR 58.7 billion outstanding a year earlier, reflecting in large part the decisions by Brazil and Argentina—the two countries with the largest outstanding IMF credit—to repay their outstanding drawings. The IMF approved a total of 6 new Stand-By Arrangements in 2005, bringing the number of current Stand-By Arrangements to 12. Of these, 7 are being treated as precautionary, with borrowers having indicated that they do not intend to draw on the funds committed to them.

The IMF also provides emergency assistance to help member countries with urgent balance of payments financing needs in the wake of natural disasters or in post-conflict situations. In 2005, SDR 130 million in emergency assistance loans was provided to countries in post-conflict situations and for natural disaster relief. For post-conflict low-income countries, the interest rate on IMF loans is subsidized down to 0.5 per cent per year, with the interest subsidies financed by grant contributions from bilateral donors. Canada is the third largest contributor of post-conflict subsidies.

Table 1
IMF Resource Flows (January 1 to December 31)


  2004 2005

  (in SDR billions)
Total purchases 5.0 2.70
Of which:    
  Stand-By Arrangements 3.7 2.04
  Post-conflict/natural disaster 0.3 0.13
  Extended Fund Facility 0.2 0.13
  Poverty Reduction and Growth Facility 0.8 0.40
Total repurchases 14.7 30.10
Net purchases - 9.7 -27.40

Lending decreased under the IMF’s concessional facility, the Poverty Reduction and Growth Facility (PRGF). About 75 per cent of PRGF-eligible countries had PRGF arrangements in 2005, with eight new arrangements approved during the year.

Managing Canada’s Interests

The Honourable James Michael Flaherty, Minister of Finance, is Canada’s Governor to the IMF and is responsible for the management of Canadian interests at the Fund. The Minister exercises influence on IMF issues through Canada’s Executive Director at the Fund’s Executive Board, interventions at the spring and fall meetings of the International Monetary and Financial Committee, his plenary statement at the IMF and World Bank annual meetings, and periodic meetings with the Managing Director of the Fund. The Minister’s statements are available on the Department of Finance Canada website at www.fin.gc.ca. The Governor of the Bank of Canada is Canada’s Alternate Governor of the IMF.

The ongoing management of Canada’s interests at the IMF is the responsibility of the Executive Director. Canada’s representative on the Executive Board was Kevin G. Lynch until March 5, 2006. Elected in October 2004 by constituency Governors, Mr. Lynch was one of 24 Executive Directors. In addition to Canada, he represents Ireland and 10 Caribbean countries, which form a constituency at the Executive Board. Of the 24 members of the current Executive Board, 12 are from developing or transition countries and 12 are from industrialized countries. As the main decision-making body of the Fund, the Board normally meets three times a week.

The Department of Finance Canada coordinates Canadian policy advice on IMF issues and Canada’s operational interests in the IMF. The Bank of Canada also provides advice on IMF issues to Canada’s Executive Director. Other involved government organizations include Foreign Affairs Canada and the Canadian International Development Agency. Within the Department of Finance Canada, the International Trade and Finance Branch is responsible for conducting analyses and preparing advice on the policy issues and specific country programs that are brought before the Executive Board. The Department and Canada’s Executive Director’s office also work closely with Canada’s World Bank Executive Director’s office and meet regularly with Canadian non-governmental organizations.

Parliament is informed of the activities and operations of the Bretton Woods institutions through the tabling of this annual report on their operations and through appearances of the Canadian Executive Directors and departmental officials before parliamentary committees.

Canada’s Voting Record

Since most decisions at the Fund are taken on a consensus basis, formal votes by Governors and the Executive Board are rare. Canada attempts to influence the development of Fund policy proposals before they are brought to the Board (often through the circulation of memoranda outlining Canadian positions) or to influence other members in the course of Board discussions. Canada supported all issues brought forward in 2005 for votes by Executive Directors and Governors.

Canadian Executive Director’s Office

In addition to the Executive Director, Canada’s office is staffed by two Canadian senior advisors and two advisors, one of whom rotates with other members of the constituency. Ireland staffs the Alternate Executive Director’s position and the Caribbean countries staff a third senior advisor’s position.

The primary responsibility of the Executive Director’s Office is to represent the interests of Canada and the other members of the constituency at the Fund’s Executive Board. The office participates in the Board’s discussions on a wide variety of policy, operational and administrative matters, including surveillance issues and country assistance requests and reviews.


Members of the Executive Director’s Office

Executive Director Kevin G. Lynch (Canada)*
Alternate Executive Director Peter Charleton (Ireland)
Senior Advisor Paul Jenkins (Canada)
Senior Advisor Richard Campbell (Caribbean)
Senior Advisor Mark Kruger (Canada)
Advisor Shawn Ladd (Canada)
Advisor Yvette Alvarez (Belize)
Administrative Assistant Catherine Byrne (Ireland)
Administrative Assistant Liz Craib (Canada)
Phone/fax (202) 623-7778/(202) 623-4712
Address 11-112, 700 – 19th Street N.W.,
Washington, DC 20431, USA
klynch@imf.org
cbyrne@imf.org

* Kevin G. Lynch was Executive Director until March 5, 2006, and became Clerck of the Privy Council on March 6, 2006. Jonathan T. Fried was elected Executive Director on April 7, 2006

Canada’s Financial Participation

Canada’s financial participation in the IMF consists primarily of its quota subscription. Canada’s quota is SDR 6,369.2 million, or about 3 per cent of total quotas. Canada’s quota subscription is a government asset, which is made available to the Fund partly in Canadian dollars and partly in reserve currencies, such as US dollars or SDRs. These non-Canadian-dollar amounts are also part of Canada’s foreign exchange reserves. As an asset, Canada’s quota subscription is recorded as a non-budgetary expenditure in the budget of the Government of Canada.

Only a very small portion of the Canadian-dollar part of Canada’s subscription is actually held in cash by the IMF. The balance is held by the Bank of Canada in the form of demand notes, which are available to the Fund in the event it needs to draw upon additional resources. Canada earns interest on its quota subscription when the Canadian dollar is used in Fund lending operations by other member countries. In 2005, Canada received SDR 15.1 million on its net creditor position in the IMF. The net income from Canada’s net creditor position with the Fund is paid into the Government of Canada’s Exchange Fund Account, adding to our foreign exchange reserves.

Table 2
Canada’s Financial Position in the IMF


  December 31, 2005 December 31, 2004

  (in SDR millions)
Quota 6,369.2 6,369.2
Fund holdings of Canadian dollars 5,388.9* 4,219.6*
Reserve position in the Fund 980.3** 2,149.6**

* In accordance with Fund regulations, at least 0.25 per cent of Canada’s quota is held by the IMF in a Canadian-dollar cash deposit at the Bank of Canada. The Fund’s remaining Canadian-dollar holdings are in the form of non-interest-bearing demand notes, also kept by the Bank of Canada.

** This is the amount Canada is entitled to draw on demand from the IMF for balance of payments purposes. Canada’s reserve position in the Fund is the result of the portion of Canada’s quota subscription made available to the Fund over time in reserve currencies, the use of the Canadian dollar in Fund financial transactions with other members, and loans to the IMF under borrowing arrangements such as the General Arrangements to Borrow and New Arrangements to Borrow. As the name suggests, Canada’s reserve position in the Fund is a part of Canada’s official foreign exchange reserves.

At the end of 2005, Canada’s holdings of SDRs amounted to SDR 627.6 million, or 80.5 per cent of Canada’s cumulative allocation of SDRs. In 2005, Canada held SDRs in an amount below its allocation, and so paid net interest of SDR 4.2 million.[3]

In 2005, in line with earlier commitments, Canada made further contributions to the IMF’s Poverty Reduction and Growth Facility. The facility provides financial support on concessional terms to low-income countries facing protracted balance of payments problems. Canada’s total commitment to the Poverty Reduction and Growth Facility is a loan of SDR 700 million and a grant of approximately SDR 190 million. At the end of 2005, Canada had extended the full amount of SDR 700 million in loan payments under these arrangements, and subsidy contributions equalled SDR 188.4 million of the SDR 190 million. In 2005, Canada received SDR 9.7 million in interest earned on loans to the Poverty Reduction and Growth Facility.

Further, Canada is a participant in a financing arrangement established to supplement the Fund’s regular resources in the event of financial crises, the New Arrangements to Borrow (NAB), which was not used in 2005. Canada is also a participant in the General Arrangements to Borrow (GAB), an earlier credit arrangement established by the Group of Ten. Canada’s GAB commitment is the equivalent of SDR 892.5 million. This line of credit was not used in 2005.

New Arrangements to Borrow

The following are the main features of the NAB, which came into force in 1998:

  • Participating countries will make loans to the IMF when supplementary resources are needed to forestall or cope with an impairment of the international monetary system, or deal with an exceptional situation that poses a threat to the stability of the system.
  • Twenty-five countries have agreed to lend up to SDR 34 billion (about C$65 billion) to the Fund in case of financial emergencies.
  • Canada’s share in the arrangement is 4.1 per cent, in the form of a commitment to provide non-budgetary loans to the IMF from its international reserves.
  • The NAB does not replace the GAB, which remains in force. However, the NAB would be the first and principal recourse of the IMF if supplementary resources were needed.

Challenges Ahead

A key challenge for the Fund is to ensure that it meets the needs of an increasingly integrated global economic system. The evolution of the Fund within the international financial system should reflect changes in the world economy. In particular, there is a need to assess the role of the Fund in a world of large-scale private capital flows and to adapt its governance to reflect changes in the world economy. To meet these challenges:

  • The Fund should continue to strengthen its surveillance role to ensure that its advice addresses the most pressing challenges confronting its members and forms an integral part of the debate over policy responses. This should include advice on appropriate exchange rate arrangements in member countries.
  • The Fund should implement the strategic direction outlined in The Managing Director’s Report on the Fund’s Medium-Term Strategy and endorsed by its membership to enhance the effectiveness of its role in the international economic system over the medium and longer term. This includes working to ensure that its management practices support its objectives and that it has the necessary tools to fulfill its mandate.
  • The Fund needs to enhance it’s capacity to prevent and resolve international financial crises.
  • The Fund will also need to consider how best to support its policy responsibilities in the face of a reduced income stream as middle-income countries repay their loans and lower-income countries adopt non-borrowing Policy Support Instrument programs.

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