The work of the IMF is of three main types.

Surveillance involves the monitoring of

economic and financial developments, and the provision of policy advice, aimed
especially at crisis-prevention. The IMF also lends to countries with balance of payments
difficulties, to provide temporary financing and to support policies aimed at correcting
the underlying problems; loans to low-income countries are also aimed especially at
poverty reduction. Third, the IMF provides countries with technical assistance and
training in its areas of expertise. Supporting all three of these activities is IMF work in
economic research and statistics.

In recent years, as part of its efforts to strengthen the international financial system, and
to enhance its effectiveness at preventing and resolving crises, the IMF has applied both
its surveillance and technical assistance work to the development of standards and codes
of good practice in its areas of responsibility, and to the strengthening of financial
sectors.

The IMF also plays an important role in the fight against money-laundering and terrorism
IMF Lending
October 5, 2010

A core responsibility of the IMF is to provide loans to member countries experiencing

actual or potential balance of payments problems. This financial assistance enables
countries to rebuild their international reserves, stabilize their currencies, continue
paying for imports, and restore conditions for strong economic growth, while
undertaking policies to correct underlying problems. Unlike development banks, the IMF
does not lend for specific projects.

When can a country borrow from the IMF?

A member country may request IMF financial assistance if it has a balance of payments
need—that is, if it cannot find sufficient financing on affordable terms to meet its net
international payments while maintaining adequate reserve buffers going forward. An
IMF loan provides a cushion that eases the adjustment policies and reforms that a country
must make to correct its balance of payments problem and restore conditions for strong
economic growth.

The changing nature of IMF lending

The volume of loans provided by the IMF has fluctuated significantly over time. The oil
shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases
in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the
crises in emerging market economies led to further surges of demand for IMF resources.
Deep crises in Latin America kept demand for IMF resources high in the early 2000s, but
these loans were largely repaid as conditions improved. IMF lending rose again starting
in late 2008, as a period of abundant capital flows and low pricing of risk gave way to
global deleveraging in the wake of the financial crisis in advanced economies.

The process of IMF lending

Upon request by a member country, an IMF loan is usually provided under an

“arrangement,” which may, when appropriate, stipulate specific policies and measures a
country has agreed to implement to resolve its balance of payments problem. The
economic program underlying an arrangement is formulated by the country in
consultation with the IMF and is presented to the Fund’s Executive Board in a “Letter of
Intent.” Once an arrangement is approved by the Board, the loan is usually released in
phased installments as the program is implemented.

IMF Facilities
Over the years, the IMF has developed various loan instruments, or “facilities,” that are
tailored to address the specific circumstances of its diverse membership. Low-income
countries may borrow on concessional terms through the Extended Credit Facility (ECF),
the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF) (see IMF Support
for Low-Income Countries). Nonconcessional loans are provided mainly through Stand-
By Arrangements (SBA), the Flexible Credit Line (FCL), and the Extended Fund Facility
(which is useful primarily for longer-term needs). The IMF also provides emergency
assistance to support recovery from natural disasters and conflicts. All non-concessional
facilities are subject to the IMF’s market-related interest rate, known as the “rate of
charge,” and large loans (above certain limits) carry a surcharge. The rate of charge is
based on the SDR interest rate, which is revised weekly to take account of changes in
short-term interest rates in major international money markets. The amount that a country
can borrow from the Fund, known as its access limit, varies depending on the type of
loan, but is typically a multiple of the country’s IMF quota. This limit may be exceeded
in exceptional circumstances. The Flexible Credit Line has no pre-set cap on access.

The new concessional facilities for LICs were established in January 2010 under the
Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the
Fund’s financial support more flexible and better tailored to the diverse needs of LICs.
Access limits and norms have been approximately doubled compared to pre-crisis levels.
Financing terms have been made more concessional, and the interest rate is reviewed
every two years. All facilities support country-owned programs aimed at achieving a
sustainable macroeconomic position consistent with strong and durable poverty reduction
and growth.

• The Extended Credit Facility (ECF)succeeds the Poverty Reduction and

Growth Facility (PRGF) as the Fund’s main tool for providing medium-term
support to LICs with protracted balance of payments problems. Financing under
the ECF currently carries a zero interest rate, with a grace period of 5½ years, and
a final maturity of 10 years.
• The Standby Credit Facility (SCF) provides financial assistance to LICs with
short-term balance of payments needs. The SCF replaces the High-Access
Component of the Exogenous Shocks Facility (ESF), and can be used in a wide
range of circumstances, including on a precautionary basis. Financing under the
SCF currently carries a zero interest rate, with a grace period of 4 years, and a
final maturity of 8 years.
• The Rapid Credit Facility (RCF) provides rapid financial assistance with
limited conditionality to LICs facing an urgent balance of payments need. The
RCF streamlines the Fund’s emergency assistance for LICs, and can be used
flexibly in a wide range of circumstances. Financing under the RCF currently
carries a zero interest rate, has a grace period of 5½ years, and a final maturity of
10 years.

Stand-By Arrangements (SBA). The bulk of Fund assistance to middle-income

countries is provided through SBAs. The SBA is designed to help countries address
short-term balance of payments problems. Program targets are designed to address these
problems and Fund disbursements are made conditional on achieving these targets
(‘conditionality’). The length of a SBA is typically 12–24 months, and repayment is due
within 3¼-5 years of disbursement. SBAs may be provided on a precautionary basis—
where countries choose not to draw upon approved amounts but retain the option to do so
if conditions deteriorate—both within the normal access limits and in cases of
exceptional access. The SBA provides for flexibility with respect to phasing, with front-
loaded access where appropriate.

Flexible Credit Line (FCL). The FCL is for countries with very strong fundamentals,
policies, and track records of policy implementation and is particularly useful for crisis
prevention purposes. FCL arrangements are approved for countries meeting pre-set
qualification criteria. The length of the FCL is one or two year (with an interim review of
continued qualification after one year) and the repayment period the same as for the SBA.
Access is determined on a case-by-case basis, is not subject to the normal access limits,
and is available in a single up-front disbursement rather than phased. Disbursements
under the FCL are not conditioned on implementation of specific policy understandings
as is the case under the SBA. There is flexibility to either draw on the credit line at the
time it is approved or treat it as precautionary.

Precautionary Credit Line (PCL). The PCL is for countries with sound fundamentals
and policies, and a track record of implementing such policies. While they may face
moderate vulnerabilities that may not meet the FCL qualification standards, they do not
require the same large-scale policy adjustments normally associated with traditional
SBAs. The PCL combines qualification (similar to the FCL) with focused ex-post
conditions that aim at addressing the identified vulnerabilities in the context of semi-
annual monitoring. It can have the length of between one and two years. Access can be
front-loaded, with up to 500 percent of quota made available on approval and up to a total
of 1000 percent of quota after 12 months subject to satisfactory progress in reducing
vulnerabilities. While there may be no actual balance of payments need should at the time
of approval, the PCL can be drawn upon should such a need arise unexpectedly.

Extended Fund Facility (EFF). This facility was established in 1974 to help countries
address longer-term balance of payments problems requiring fundamental economic
reforms. Arrangements under the EFF are thus longer than SBAs—usually 3 years.
Repayment is due within 4½–10 years from the date of disbursement.

Emergency assistance. The IMF provides emergency assistance to countries that have
experienced a natural disaster or are emerging from conflict. Emergency loans are subject
to the basic rate of charge, although interest subsidies are available for some countries,
subject to availability. Loans must be repaid within 3¼–5 years.
Factsheet

Technical Assistance
September 13, 2010

IMF technical assistance supports the development of the productive resources of

member countries by helping them to effectively manage their economic policy and
financial affairs. The IMF helps countries to strengthen their capacity in both human and
institutional resources, and to design appropriate macroeconomic, financial, and
structural policies.

Technical assistance benefits low-income countries

Technical assistance is one of the benefits of IMF membership. About 85 percent percent
of IMF technical assistance goes to low and lower-middle income countries. Post-conflict
countries are also major beneficiaries. Apart from the immediate benefit to recipient
countries, by helping individual countries reduce weaknesses and vulnerabilities,
technical assistance also contributes to a more robust and stable global economy. Further,
technical assistance provided to emerging and industrialized economies in select cutting-
edge areas helps provide traction to IMF policy advice, and keeps the institution up-to-
date on innovations and risks to the international economy.

Integration of technical assistance with IMF surveillance and lending

Technical assistance contributes to the effectiveness of the IMF’s surveillance and

lending programs, and is an important complement to these other core IMF functions.
Specialized technical assistance from the IMF helps build capacity in countries for
effective policymaking, including in support of surveillance or lending operations.
Conversely, surveillance and lending work results in policy and other experiences that
further inform and strengthen the IMF’s technical assistance program according to
international best practices. In view of these linkages, achieving greater integration
between technical assistance, surveillance, and lending operations is a key priority for the
IMF.

Technical assistance covers core areas of IMF expertise

The IMF provides technical assistance in its areas of core expertise: macroeconomic
policy, tax policy and revenue administration, expenditure management, monetary policy,
the exchange rate system, financial sector sustainability, and macroeconomic and
financial statistics. In particular, efforts in recent years to strengthen the international
financial system have triggered additional demands for IMF technical assistance. For
example, countries have asked for help to address financial sector weaknesses identified
within the framework of the joint IMF-World Bank Financial Sector Assessment
Program; adopt and adhere to international standards and codes for financial, fiscal, and
statistical management; implement recommendations from off-shore financial centers
assessments; and strengthen measures to combat money laundering and the financing of
terrorism.

At the same time, there is a continuing demand for technical assistance to help low-
income countries build capacity to design and implement poverty-reducing and growth
programs, and to help heavily indebted poor countries undertake debt sustainability
analyses and manage debt-reduction programs. The IMF also contributes actively to the
Integrated Framework for trade-related technical assistance, which aims to assist low-
income countries expand their participation in the global economy.

The recipient country is fully involved in the entire process of technical assistance, from
identification of need, to implementation, monitoring, and evaluation.

Technical assistance delivery takes a regional approach

The IMF delivers technical assistance in various ways. Depending on the nature of the
assignment, support is often provided through staff missions of limited duration sent from
headquarters, or the placement of experts and/or resident advisors for periods ranging
from a few weeks to a few years. Assistance might also be provided in the form of
technical and diagnostic studies, training courses, seminars, workshops, and “on-line”
advice and support.

The IMF has increasingly adopted a regional approach to the delivery of technical
assistance and training. It operates seven regional technical assistance centers—in the
Pacific; the Caribbean; East, West and Central Africa; the Middle East; and in Central
America. The latter was opened in May 2009, and the IMF is planning to open three
additional regional centers—in Central Asia, and two further centers in Africa. In
addition to training offered at the IMF Institute in Washington D.C., the IMF also offers
courses, workshops, and seminars for country officials through a network of
sevenregional training institutes and programs, and in the context of the regional
technical assistance centers.

The regional centers will be complemented by technical assistance financed through

topical trust funds. The first such fund started operations in May 2009, concentrating on
building capacity in connection with anti-money laundering and combating the financing
of terrorism. Further trust funds are planned, including on tax administration and policy,
managing natural resource wealth, fiscal management, sustainable debt strategies,
financial stability statistics, and training in Africa.

Donors play a large role in financing technical assistance

Technical assistance accounts for about one-fifth of the IMF’s operating budget. It is
financed by both internal and external resources, the latter comprising funds from
bilateral and multilateral donors. Such cooperation and resource sharing with external
donors has a few benefits: it leverages the internal resources available for technical
assistance, helps avoid duplication of advice by different donors, and strengthens
collaboration with donors and other technical assistance providers.

Bilateral donors to the IMF’s technical assistance and training program include Australia,
Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, India,
Italy, Japan, the Republic of Korea, Kuwait, Luxembourg, Mexico, the Netherlands, New
Zealand, Norway, Oman, Qatar, Russia, Saudi Arabia, Singapore, Spain, Switzerland, the
United Kingdom, and some beneficiary countries. Multilateral donors include the African
Development Bank, the Arab Monetary Fund, the Asian Development Bank, the
Caribbean Development Bank, the Central American Bank for Economic Integration, the
European Commission, the European Investment Bank, the Inter-American Development
Bank, the Islamic Development Bank, and the United Nations Development Program
(UNDP). In FY 2009, external financing accounted for more than two-thirds of IMF
technical assistance field delivery.
Factsheet

Special Drawing Rights (SDRs)

December 9, 2010

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its
member countries’ official reserves. Its value is based on a basket of four key
international currencies, and SDRs can be exchanged for freely usable currencies. With
a general SDR allocation that took effect on August 28 and a special allocation on
September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204
billion (equivalent to about $308 billion, converted using the rate of August 31, 2010).

The role of the SDR

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange
rate system. A country participating in this system needed official reserves—government
or central bank holdings of gold and widely accepted foreign currencies—that could be
used to purchase the domestic currency in foreign exchange markets, as required to
maintain its exchange rate. But the international supply of two key reserve assets—gold
and the U.S. dollar—proved inadequate for supporting the expansion of world trade and
financial development that was taking place. Therefore, the international community
decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major
currencies shifted to a floating exchange rate regime. In addition, the growth in
international capital markets facilitated borrowing by creditworthy governments. Both of
these developments lessened the need for SDRs.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on
the freely usable currencies of IMF members. Holders of SDRs can obtain these
currencies in exchange for their SDRs in two ways: first, through the arrangement of
voluntary exchanges between members; and second, by the IMF designating members
with strong external positions to purchase SDRs from members with weak external
positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the
unit of account of the IMF and some other international organizations.

Basket of currencies determines the value of the SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold
—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the
Bretton Woods system in 1973, however, the SDR was redefined as a basket of
currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar.
The U.S. dollar-equivalent of the SDR is posted dailyon the IMF’s website. It is
calculated as the sum of specific amounts of the four basket currencies valued in U.S.
dollars, on the basis of exchange rates quoted at noon each day in the London market.

The basket composition is reviewed every five years by the Executive Board to ensure
that it reflects the relative importance of currencies in the world's trading and financial
systems. In the most recent review (in November 2010), the weights of the currencies in
the SDR basket were revised based on the value of the exports of goods and services and
the amount of reserves denominated in the respective currencies that were held by other
members of the IMF. These changes become effective on January 1, 2011. The next
review will take place by 2015.

The SDR interest rate

The SDR interest rate provides the basis for calculating the interest charged to members
on regular (non-concessional) IMF loans, the interest paid to members on their SDR
holdings and charged on their SDR allocations, and the interest paid to members on a
portion of their quota subscriptions. The SDR interest rate is determined weekly and is
based on a weighted average of representative interest rates on short-term debt in the
money markets.

SDR allocations to IMF members

Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion
to their IMF quotas. Such an allocation provides each member with an asset (SDR
holdings) and an equivalent liability (SDR allocation). If a member’s SDR holdings rise
above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs
than allocated, it pays interest on the shortfall.

There are two kinds of allocations:

General allocations of SDRs. General allocations have to be based on a long-term global

need to supplement existing reserve assets. Decisions to allocate SDRs have been made
three times. The first allocation was for a total amount of SDR 9.3 billion, distributed in
1970-72 in yearly installments. The second allocation, for SDR 12.1 billion, was
distributed in 1979–81 in yearly installments.

The third general allocation was approved on August 7, 2009 for an amount of SDR
161.2 billion and took place on August 28, 2009. The allocation increased simultaneously
members’ SDR holdings and their cumulative SDR allocations by about 74.13 percent of
their quota.

Special allocations of SDRs. A proposal for a special one-time allocation of SDRs was
approved by the IMF's Board of Governors in September 1997 through the proposed
Fourth Amendment of the Articles of Agreement. Its intent is to enable all members of
the IMF to participate in the SDR system on an equitable basis and correct for the fact
that countries that joined the Fund after 1981—more than one-fifth of the current IMF
membership—had never received an SDR allocation.

The Fourth Amendment became effective for all members on August 10, 2009 when the
Fund certified that at least three-fifths of the IMF membership (112 members) with 85
percent of the total voting power accepted it. On August 5, 2009, the United States joined
133 other members in supporting the Amendment. The special allocation was
implemented on September 9, 2009. It increased members' cumulative SDR allocations
by SDR 21.5 billion using a common benchmark ratio as described in the amendment.

Buying and selling SDRs

IMF members often need to buy SDRs to discharge obligations to the IMF, or they may
wish to sell SDRs in order to adjust the composition of their reserves. The IMF acts as an
intermediary between members and prescribed holders to ensure that SDRs can be
exchanged for freely usable currencies. For more than two decades, the SDR market has
functioned through voluntary trading arrangements. Under these arrangements a number
of members and one prescribed holder have volunteered to buy or sell SDRs within limits
defined by their respective arrangements. Following the 2009 SDR allocations, the
number and size of the voluntary arrangements has been expanded to ensure continued
liquidity of the voluntary SDR market.

In the event that there is insufficient capacity under the voluntary trading arrangements,
the Fund can activate the designation mechanism. Under this mechanism, members with
sufficiently strong external positions are designated by the Fund to buy SDRs with freely
usable currencies up to certain amounts from members with weak external positions. This
arrangement serves as a backstop to guarantee the liquidity and the reserve asset
character of the SDR.
IMF Surveillance
February 23, 2011

The IMF is mandated to oversee the international monetary system and monitor the
economic and financial policies of its 187 member countries. This activity is known as
surveillance. As part of this process, which takes place both at the global level and in
individual countries, the IMF highlights possible risks to domestic and external stability
and advises on needed policy adjustments. In this way, it helps the international
monetary system serve its essential purpose of facilitating the exchange of goods,
services, and capital among countries, thereby sustaining sound economic growth.

Why is IMF surveillance important?

In today's globalized economy, where the policies of one country typically affect many
other countries, international cooperation is essential. The IMF, with its near-universal
membership of 187 countries, facilitates this cooperation. There are two main aspects to
the IMF’s work: bilateral surveillance, which comprises appraisal of and advice on the
policies of each member country; and multilateral surveillance, or oversight of the world
economy.

Consulting with member states

IMF economists continually and regularly monitor members’ economies. They visit
member countries—usually annually—to exchange views with the government and
central bank and focus on whether there are risks to domestic and external stability that
argue for adjustments in economic or financial policies. During their mission, IMF staff
also typically meet with other stakeholders, such as parliamentarians and representatives
of business, labor unions, and civil society to help evaluate the country’s economic
policies and direction. On return to headquarters, the mission submits a report to the
IMF’s Executive Board for discussion. The Board’s views are subsequently transmitted
to the country’s authorities.

In recent years, surveillance has become increasingly transparent. Almost all member
countries now agree to publication of a Public Information Notice, which summarizes the
views of the Executive Board. In nine out of ten cases, the staff report and accompanying
analysis are also published on the IMF’s website.

Overseeing the bigger world picture

The IMF also reviews global and regional economic trends. Its key instruments of
multilateral surveillance are two semi-annual publications, the World Economic
Outlook (WEO) and the Global Financial Stability Report (GFSR). The WEO provides
detailed analysis of the state of the world economy, addressing issues of pressing interest,
such as the current global financial turmoil and economic downturn. The GFSR provides
an up-to-date assessment of global financial markets and prospects, and highlights
imbalances and vulnerabilities that could pose risks to financial market stability. The IMF
also publishes Regional Economic Outlook reports, providing more detailed analysis for
the five major regions of the world, and cooperates closely with other groups such as the
Group of Twenty (G-20) industrialized and emerging market economies.

Keeping surveillance relevant

Surveillance in its present form was established by Article IV of the IMF’s Articles of
Agreement, as revised in the late 1970s following the collapse of the Bretton Woods
system of fixed exchange rates. Under Article IV, member countries undertake to
collaborate with the IMF and with one another to promote stability. For its part, the IMF
is charged with (i) overseeing the international monetary system to ensure its effective
operation, and (ii) monitoring each member's compliance with its policy obligations.

In June 2007, the legal framework for surveillance underwent a major update with the
adoption of the Decision on Bilateral Surveillance over Members’ Policies. The Decision
clarifies that country surveillance should be focused on assessing whether countries’
policies promote domestic and external stability. This means surveillance should mainly
focus on monetary, fiscal, financial, and exchange rate policies and assess risks and
vulnerabilities. It also provides guidance to member countries on how to conduct
exchange rate policies in a way that is consistent with the objective of promoting stability
and avoiding manipulation.

At the G-20 Summit in Pittsburgh, world leaders highlighted the role of IMF surveillance
in resolving the global crisis. They called for more sustained and systematic international
cooperation and asked the IMF to support the G-20’s mutual assessment process through
a forward-looking analysis of whether policies pursued by member countries were
collectively consistent with sustained and balanced growth for the global economy.

Following a request made in October 2009 by the International Monetary and Financial
Committee, the IMF undertook a review of its surveillance mandate. This resulted in
measures to integrate all dimensions of surveillance –multilateral, bilateral and financial
—and make it more effective. These measures will go a long way to address the concerns
raised in the recently published Report by the Independent Evaluation Office on the IMF
Performance in the Run-up to the Financial and Economic Crisis. They include:

• undertaking a new early warning exercise and vulnerability exercise for advanced
economies;
• preparing a synthesis of the WEO and GFSR to convey clear messages to senior
policymakers and leaders;
• Integrating financial stability assessments of the Financial Sector Assessment
Program (FSAP) for the 25 most important financial systems;
 • preparing, on a trial basis, dedicated reports analyzing external spillovers from the
policies of the most systemically important economies; and
• leveraging cross-country experience by preparing cross-country/thematic reports
that draw policy lessons for other member nations facing similar issues.

The Triennial Surveillance Review, expected by September 2011, will consider

additional actions to improve the quality of IMF surveillance. In particular, it will
consider how well the IMF is positioned to detect and warn about risks, and the
effectiveness, candor and evenhandedness of surveillance.