The Chairman’s Summing Up at the Conclusion of the Discussion on Overdue Payments to the Fund: Experience and Procedures, Executive Board Meeting 84/54, together with relevant remarks at Meeting 84/55 - April 5, 1984

The sense of the meeting is to approve the approach suggested by the staff in EBS/84/46, and I shall only mention a few major points that have been the subject of discussion.

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The position described in paragraphs 5 and 6 on page 16 of EBS/84/46 was supported by the majority of the Executive Board. The Executive Board clearly does not wish to open the way for rescheduling of obligations. The staff arguments on the point were clearly found convincing and were supported by the Board. This does not mean that the relevant Articles, and particularly Article V, Section 7(g) cannot be resorted to in exceptional cases if the Board so decides. But while the Board would have to satisfy itself that discharge on the due date would result in exceptional hardship, the burden of proof that such hardship would result must be on the country, and I did not sense much support in the Board for the use of this provision. There is a very strong sentiment against the idea that the Fund should match the rescheduling operations of the Paris Club or any other group, and it is useful that the Board was so clear on this point. The Fund could certainly not adopt such a course.

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Paragraphs 5 and 6 on page 16 of EBS/84/46

• 5. The question has arisen whether the Fund should reschedule repurchase obligations if a member represents difficulty in meeting financial obligations to the Fund within the normal repayment periods, or even stretching repurchases beyond these periods. Such postponements are unlikely materially to facilitate repayments to the Fund, or to contribute to the adoption of adjustment policies required to solve underlying balance of payments problems. In fact, postponement could result in a ballooning of repurchase obligations at the end of the normal repayment periods and, in the absence of adjustment, exacerbate difficulties at a later stage.

  6. Repurchase obligations to the Fund have not been postponed when a member sought rescheduling of indebtedness to official institutions under the aegis of the Paris Club. The Fund’s contribution in this connection is best rendered in the form of technical advice and by way of new stand-by or extended arrangements in support of adjustment policies that normally are a precondition for multilateral rescheduling of indebtedness to official creditors.

IV. Policies and Practices on the Postponement of Obligation

Some member countries with overdue obligations have asked whether a particular repurchase obligation could be rescheduled to a later date within the outside limit of the installment schedule established under the policy under which the purchase was made, or even beyond that outside limit.¹

Under the relevant decisions of the Fund, repurchases are to be made in regular quarterly or semiannual installments unless the Executive Board decides otherwise.² An important reason for introducing a standard schedule of repurchases after the Second Amendment of the Articles in 1978 was the intent to facilitate the reduction in indebtedness to the Fund by distributing repurchases in relatively frequent and equal installments over the specified repurchase period.³ Within the period applicable to the policy under which the purchase was made, repurchase obligations can be rescheduled by a decision of the Executive Board requiring a simple majority of votes cast.⁴ However, postponement of an installment means an accumulation of position has improved adequately in the interim. Postponement of purchases financed from borrowed resources which the Fund has to repay to its creditors could also lead to a substitution of ordinary for borrowed resources, because the Fund is obliged to repay its lenders whether or not the drawing for which the Fund borrowed is repurchased. 

These considerations suggest that postponement of repurchases would be rare and only in cases where it is clear that the member would be in a better position to discharge the obligation on the new due date. The three cases for which repurchases have been postponed with respect to purchases made since the Second Amendment came into effect (viz. for … [Guyana and Nicaragua]) did not result in discharged of obligations at the rescheduled due dates. In neither of these cases was the postponement accompanied by policies which resulted in a solution of balance of payments difficulties. Another consideration arguing against postponement is the evident need for the member to take steps to improve its balance of payments when it experiences difficulties in meeting repurchase obligations as they mature. The postponement of repurchases when they fall due is equivalent, in economic terms, to making additional credit available to the member. Unless accompanied by adjustment policies, a postponement is likely to be no more than a temporary palliative. In these circumstances, Fund assistance would best be associated with further programs of adjustment under new arrangements.⁵ A postponement of repurchase obligations related to purchases made after the Second Amendment of the Articles has therefore not been recommended to the Executive Board except in very rare cases.⁶ The question has also arisen whether rescheduling of foreign debt to official sources should be accompanied by a rescheduling of debt owed to the Fund. In view of the central role of the Fund in the international monetary system and the special character of Fund assistance supporting members’ adjustments programs, it is essential that lending by the Fund and the associated repurchase obligations not be included in the multilateral rescheduling of indebtedness to official institutions under the auspices of the Paris Club, and that indebtedness to the Fund continue to be repaid in accordance with the schedules established by the Fund under the policies on the use of its resources. An appropriate contribution by the Fund in connection with Paris Club reschedulings would consist of technical advice and arranging a new stand-by or extended arrangement in support of the adjustment policies adopted by the member concerned, and requires that all the conditions necessary for Fund support are met.

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¹ The question of postponing the payment of charges has also arisen. However, the Fund’s Articles provide no authority for the postponement of the payment of charges on the Fund’s holdings of a member’s currency.

² The periods vary according to the facility under which purchases were made. Holdings resulting from purchases in the credit tranches financed from ordinary resources or under the compensatory financing or buffer stock decisions are to be repurchased in eight quarterly installments beginning three years and ending not later than five years after the purchase (Executive Board Decision No. 5703-(78/39) as amended by Decision No. 6862-(81/81)). Purchases financed with borrowed funds under the SFF and EAR decisions are to be repurchased in eight semiannual installments beginning three and one half years after the purchase and ending no later than seven years after the purchase (Executive Board Decision Nos. 5508(77/127) and 6783-(81/40)). Those made under an il extended arrangement and financed by ordinary resources are to be repurchased in 12 semiannual installments beginning four years and ending not later than ten years after the purchase (Executive Board Decision, No. 4377-(74/114) as amended by Decisions No. 6339-(79/179) and No. 6830-(81/65)).

³ A small part of holdings of currencies subject to repurchase, amounting to SDR 131.6 million, relate to purchases made before the Second Amendment and remain subject to the then applicable repurchase policies.

⁴ Rescheduling of repurchases beyond the appropriate repurchase period is possible only if discharge on the due date would result in exceptional hardship for the member. The longer period must be consistent with the temporary use of the general resources of the Fund; and the decision must be taken by 70 per cent of the total voting power (Article V, Section 7(g)).

⁵ This question has been discussed in more detail in “Review of the Policy on Access to the Fund’s Resources--General Considerations” (EBS/83/132, 61271831, and will be considered further in a forthcoming paper on prolonged use of the Fund’s resources.

⁶ There have been only three such recommendations, and these have been for brief periods. …